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INVITE				3
NOTICE TO CONVENE				4
PROPOSAL FROM MANAGEMENT FOR THE 56TH GENERAL ORDINARY ASSEMBLY				5
1.	PROCEDURES INHERENT TO THE ANNUAL GENERAL MEETING HEREBY CONVENED			5
	1.1.	Establishment of the Annual General Meeting		5
	1.2.	Qualification and Participation in the Annual General Meeting		5
	1.3.	Representation in the Annual General Meeting		6
2.	ISSUES FOR DELIBERATION AT THE ANNUAL GENERAL MEETING HEREBY CONVENED			7
	2.1.	Examine, discuss and vote the Complete Corporate Financial Statements, for fiscal year ended on December 31, 2015;		7
	2.2.	Deliberate on the management proposal for deployment of the results for the fiscal year ended on December 31, 2015 with deployment of the balance of the capital reserve to absorb the losses raised ;		8
	2.3.	Elect members of the Board of Directors, and appoint the Chairperson among the members elected;		8
	2.4.	Elect members of the Fiscal Council and respective deputies;		9
	2.5.	Set the overall compensation for management and members of the Corporate Fiscal Council.		9
ANNEX 01				11
MANAGEMENT COMMENTS ON THE FINANCIAL STATUS OF THE COMPANY, IN THE TERMS OF ITEM 10 OF THE REFERENCE TEMPLATE				11
ANNEX 02				12
INFORMATION IN CONNECTION WITH CANDIDATES TO THE BOARD OF DIRECTORS APPOINTED BY CONTROLLING SHAREHOLDERS				12
ANNEX 03				14
INFORMATION IN CONNECTION WITH CANDIDATES TO THE FISCAL COUNCIL APPOINTED BY CONTROLLING SHAREHOLDERS				14
ANNEX 04				15
ESTABLISHMENT OF COMPENSATION FOR BOARD OF DIRECTORS, EXECUTIVE BOARD AND MEMBERS OF THE FISCAL COUNCIL				15
ANNEX 05				17
INFORMATION IN CONNECTION WITH COMPENSATION OF ADMINISTRATORS IN THE TERMS OF ITEM 13 OF THE REFERENCE TEMPLATE				17
ANNEX 06				18
RULES FOR ELECTION OF MEMBERS TO THE BOARD OF DIRECTORS, FISCAL COUNCIL BY NON-CONTROLLING SHAREHOLDERS				18

 

 

 

INVITE

 

CENTRAIS ELÉTRICAS BRASILEIRAS S.A. – ELETROBRAS, hereby invites all its shareholders to attend and participate in the 56th Annual General Meeting, as per below:

 

Date: April 29, 2016

 

Time (Brasília): 2 PM

 

Venue: Company Offices, Setor Comercial Norte, Quadra 04, Bloco “B”, nº 100, Room 203 of Edifício Centro Empresarial VARIG – Brasília – DF

 

Event: Annual General Meeting

 

Topics for deliberation:

 

1. Examine, discuss, and vote on the Company’s Complete Financial Statements, for the year ended on December 31, 2015;

2. Decide on management’s proposal for allocating the result for the year ended on December 31, 2015, with the use of the balance of the capital reserve to absorb the losses registered in the year that exceeded the profit reserves, as item I of Article 200 of Federal Law 6,404/1976, as amended;

3. Elect the members of the Board of Directors and appoint, among the members elected, its Chairman;

4. Elect the members of the Fiscal Council and respective alternates; and

5. To establish the remuneration of the members of the Board of Directors, Fiscal Council and Executive Board.

 

 

MINISTRY OF MINES AND ENERGY

CENTRAIS ELÉTRICAS BRASILEIRAS S.A. - ELETROBRAS

(Publicly traded company)

CNPJ. nº 00.001.180/0001-26

NOTICE TO CONVENE

56th Annual General Meeting

 

We hereby invite the Shareholders of Centrais Elétricas Brasileiras S.A  - Eletrobras (“Company”) to meet at the Company’s headquarters, in Brasília, Setor Comercial Norte, Quadra 04, Bloco “B,” No. 100, Room 203 of Edifício Centro Empresarial VARIG – Brasília – FD, on April 29, 2015, at 2:00 p.m., in a Annual General Meeting which shall take place upon first notification with the presence of shareholders representing at least 25% (twenty-five percent) of the voting capital of the Company, to decide on the following Order of the Day:

 

1. Examine, discuss, and vote on the Company’s Complete Financial Statements, for the year ended on December 31, 2015;

 

2. Deliberate on management’s proposal for allocating the result for the year ended on December 31, 2015, with the use of the capital reserve to absorb the amount relating to the account of accumulated losses for the year, that exceeded the profit reserves, as item I of Article 200 of Federal Law 6,404/1976, as amended ("Law of Corporations");

 

3. Elect the members of the Board of Directors and appoint, among the members elected, its Chairman;

 

4. Elect the members of the Fiscal Council and respective alternates; and

 

5. To establish the remuneration of the members of the Board of Directors, Executive Board and Fiscal Council.

 

Under the terms of the paragraph of Article 126 of the Corporate Law and the decision of the CVM in proceeding CVM RJ2014/3578, on  November 04, 2014, shareholders may be represented in the general meeting: (i) if a natural person, by a proxy established at least 1 (one) year in advance (who is a shareholder, director of the Company, or an attorney properly registered in the lists of the Order of Attorneys of Brazil), (ii) if a legal person, through its legal representatives or through a proxy named under the terms of its articles of organization and according to the rules of the Brazilian Civil Code, (iii) if an investment fund, by its director and/or manager, or by a proxy named under the terms of its articles of organization and according to the rules of the Brazilian Civil Code.

 

Shareholders, or his legal representative, shall present the following documents to ensure admission into the Meeting (Art. 5th of CVM Instruction No. 481, of December 17, 2009) as amended (“Instruction CVM 481”),:

 

An official identification document with a photo;

 

An authenticated copy of the updated articles of organization (corporate bylaws or articles of incorporation), in case of a legal person;

 

Original or authenticated photocopy of a power of attorney granted by the shareholder; and

 

Original copy of the statement of shareholdings provided by the depositary institution or by the custodian, identifying the status as shareholder.

 

 

Under the terms of the sole paragraph of Article 43 of the Company’s Bylaws, the delivery of the documents proving the status of shareholder and agency is requested at least 72 (seventy-two) hours prior to the time the mentioned Annual General Meeting, at the Investor Relations Department – DFR, Market Information Division – DFRM, at Avenida Presidente Vargas, No. 409 – 9th Floor, in the city of Rio de Janeiro, State of Rio de Janeiro, from 8:00 a.m. to noon and from 2:00 pm to 5:00 pm.  However, all shareholders who appear with the documentation needed to participate in the meeting shall be allowed to attend the Annual General Meeting hereby noticed.

 

 

As stipulated in Article 141 of the Corporate Law and Articles 1 and 3rd of CVM Instruction No. 165, of  December 11, 1991, as amended, Shareholders representing at least 5% (five percent) of the voting capital of the Company may request the adoption of the cumulative voting process for the election of the members of the Company’s Board of Directors, provided that the legal time frame of 48 (forty-eight) hours in advance of the date the Annual General Meeting hereby noticed is held, is met.

 

Decisions shall be taken in the Annual General Meeting hereby noticed by a majority vote, the vote of each shareholder being proportional to his interest in the capital stock of the Company.

 

The Company clarifies that considering the provisions of Article 11 of CVM Instruction No. 561, of April 7, 2015, as amended by CVM Instruction 570, of November 18, 2015, exercising the option provided for in the mentioned regulation, will not offer to the General Meeting hereby convened mechanism to vote online.

 

Pursuant to Art. 133, § 1 of the Corporate Law and Art. 9th of CVM Instruction No. 481, of  December 17, 2009, as amended, all documentation pertaining to the matters which shall be decided by the Annual General Meeting will be available to shareholders at the Investor Relations Department – DFR, Market Information Division – DFRM, at Avenida Presidente Vargas, No. 409 – 9th Floor, in the city of Rio de Janeiro, State of Rio de Janeiro, and on the websites of the Company (www.eletrobras.com/elb/ir), and the Comissão de Valores Mobiliários – CVM (www.cvm.gov.br).

 

Brasília, March 30, 2016.

 

Wagner Bittencourt de Oliveira

Chairman of the Board of Directors

 

 MANAGEMENT PROPOSAL FOR THE 56^th ANNUAL GENERAL MEETING

 

 

1.  Procedures inherent to the Annual General Meeting hereby convened

 

With a view to facilitating the understanding and attendance of shareholders to the Annual General Meeting hereby convened, the Company is providing below a list of relevant information in connection with the procedures for establishment, participation and execution of the meeting.

 

1.1.  Establishment of the Annual General Meeting

 

In the terms of article 125 of the Law of Corporations, in order to establish an Annual General Meeting on first call, the qualified attendance of shareholders, or their legal representatives, holding of shareholding interest of, at least, 25% (twenty-five percent) of the Company’s share capital voting is required.

 

If this percentage is not achieved, a new notice to convene must be issued with a minimum of 08 (eight) days in advance, upon which the Annual General Meeting shall be established with the attendance of any number of shareholders, and/or their legal representatives.

 

1.2.  Qualification and Participation at the Annual General Meeting

 

In order to participate in the Annual General Meeting hereby convened, Shareholders must attest to their quality as holders of shares issued by the Company, by presenting the following documents:

 

 

(a) statement issued by the financial institution depositary of the shares owned by the shareholder containing the indication of the respective shareholding interest, dated of, at most, 02 (two) days before the date of the Annual General Meeting;

 

(b) the original or authenticated copy of the power of proxy instrument, issued an regularized in the form of the law, in the event of representation of the shareholder;

 

(c) original or authenticated copy of the identity document, legally recognized as such, with recent picture and valid within the national territory, within the term of expiry, when applicable, for individual shareholders;

 

(d) current copy of the articles of incorporation and of the act that invests the representative with powers for representation within the scope of the Annual General Meeting, for legal entities;

 

For the purposes of the documents set out in item (d), the Company shall accept (i) articles of incorporation and bylaws, in certificate issued by the respective registry agency, simple copy of the original as long as accompanied by the original certificate issued by the respective registry agency or its authenticated copy, attesting to the registration of the document or authentic current copy of the act recorded; and (ii) specifically with respect to the act that invests the representative with the powers to vote on behalf of the shareholding legal entity, given it is a private mandate instrument, all signatures of the issue or its representatives, as the case may be, must be authenticated. If this act corresponds to a meeting of the Board of Directors, the shareholder must provide, in advance, evidence of the filing and publication of the act in the competent registry agency.

 

For legal entities with representatives that are not appointed within the terms of their articles of incorporation/bylaws or through some appointment procedure held in separate act, shareholders must attest to the validity of the appointment by providing evidence of the filing of the act in the competent registry agency.

 

For investment funds, representatives must prove their role as fund administrator or power of proxy holder duly appointed by the administrator, in the form of the legislation applicable.

 

For foreign legal entities, the documents that attest to the powers of proxy must undergo the process of certification by notary public and the Consulate . Documents drafted in other languages, in the terms of the Law of Introduction to the Norms of Brazilian Law (Lei de Introdução às Normas do Direito Brasileiro) (Decree-Law no. 4657, of 4 September 1942, as amended), shall only be accepted in the form of sworn translation.

 

In the terms of the single paragraph of article 43 of the Company Articles of Incorporation, delivery of documents evidencing the shareholder status and their representation, is requested to take place up to 72 (seventy-two) hours before the onset of the Annual General Meeting hereby convened, at the Department of Investor Relations - DFR, Division of Market Service – DFRM, at Avenida Presidente Vargas, nº. 409 - 9th floor, in the city of Rio de Janeiro, State of Rio de Janeiro, from 8 AM to noon and from 2 PM to 5 PM.

 

1.3.  Representation at the Annual General Meeting

 

In the terms of paragraph 1 of article 126 of the Law of Corporations and decision of CVM I. Collegiate in process CVM RJ-2014/3578, issued on 04 November 2014, shareholders may be represented at the Annual General Meeting hereby convened in the following ways: (a) when individual, by a power of proxy if established less than 1 (one) year prior (that is a shareholder, Company manager or a tornado duly registered at the Ordem dos Advogados do Brasil), (b) if legal entity, by its legal representatives or by power of proxy appointed in the terms of its respective articles of incorporation and in compliance with the rules established in the Brazilian Civil Code, (c) if investment fund, by its administrator and/or manager or, yet, by power of proxy appointed in the terms of its respective articles of incorporation and in compliance with the rules of the Brazilian Civil Code.

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The Company clarifies that, considering the dispositions of article 11 of CVM Instruction no. 561, of 7 April 2015, as amended by CVM Instruction no. 570, of 18 November 2015, in deploying the option established in said article, the mechanism for distance voting will not be available for the General Assembly hereby convened.

 

The Company advises shareholders that, considering the disposed on Notice to Market published on 27 April 2015, and considering that, to date, there has been no payment of dividend to shareholders of preferential shares as foreseen in its articles of incorporation, shareholders of preferential shares of the Company will be entitled to vote in this Annual General Meeting, in the terms established in the first paragraph of article 111 of the Law of Corporations, addressed all other formalities established in the Law of Corporations, in the Company’s Articles of Incorporation, in the applicable regulations and in this Management Proposal.

 

2.  Topics for deliberation at the Annual General Meeting hereby convened

 

2.1.  Examine, discuss and vote the Complete Corporate Financial Statements, for the year ended on December 31, 2015;

 

In the terms of article 132 of the Law of Corporations, in up to 04 (four) months after the end of the fiscal year, shareholders of the companies controlled by it must meet to, among other issues, discuss on the approval of the Financial Statements with respect to the previous fiscal year.

 

The Company informs its shareholders that, as of this date (inclusive) the Company’s Complete Annual Financial Statements, together with the Management Report, the Independent Auditors Report and the Statement of Opinion of the Company Fiscal Council, for the fiscal year ended on December 2015 are available for consultation at the Company head office or at the address of its Department of Investor Relations – DFR, as well as at the websites of the Company (www.eletrobras.com/elb/ri) and CVM (www.cvm.gov.br). In this sense, the Company highlights that, in the terms of article 133 of the Law of Corporations, notices with respect to the availability of the aforementioned documents were published in the newspapers usually used by the company for this purpose.

 

Publication of the Company Complete Annual Financial Statements, together with the Management Report and the Independent Auditors Report, in connection with the fiscal year ended on December 31, 2015, will occur opportunely, in the terms of paragraph 3 of article 133 of the Law of Corporations.

 

Additionally, in addressing CVM Instruction 481, the Company, with advance of 01 (one) month of the date set for the Annual General Meeting of Shareholders, to be held on 29 April 2016, informs the following as far as the documents listed below:

 

·   Complete Annual Financial Statements; Management Report on social business and main administrative facts; Independent Auditors Report; and Opinion Statement of the Fiscal Council, all in connection with fiscal year ended on December 31, 2015:

 

The Company’s Complete Annual Financial Statements, including the Management Report on the main business and administrative facts, the Independent Auditors Report by KPMG Auditores Independentes and the Opinion Statement of the Fiscal Council, that approved them, all with respect to the fiscal year ended on December 31, 2015, have been filed at CVM and at BM&FBOVESPA, on 30 March 2016, and are available at the websites of Company (www.eletrobras.com/elb/ri), CVM (www.cvm.gov.br) and BM&FBovespa (www.bmfbovespa.com.br).

 

·       Comments of Administrators on the Company financial situation, in the terms of Section 10 of the Reference Template.

 

 

The Administrators’ comments on the Company’s financial situation in the terms of Section 10 of the reference template are available in Annex 01 of this document .

 

·       Standard Financial Statements Form - DFP

 

The Standard Financial Statements Form (Formulário de Demonstrações Financeiras Padronizadas – DFP) was sent on the same date as the Complete Annual Financial Statements, to wit, 30 March 2016, and is available at the websites of the Company (www.eletrobras.com/elb/ri), CVM (www.cvm.gov.br) and BM&FBovespa (www.bmfbovespa.com.br).

 

2.2.  Deliberate on the management's proposal for destination of result for the year ended on December 31, 2015, using the balance of the capital reserve for absorption the registered accumulated loss;;

 

In the terms of article 132 of the Law of Corporations, in up to 04 (four) months after the end of the fiscal year, shareholders of the companies controlled by it must meet to deliberate on the destination of the result and the distribution of profit in connection with the previous fiscal year.

 

In this sense, and considering that as shown in the Annual Financial Statements, complete, with respect to the fiscal year ended on December 31, 2015 the Company posted loss of R$ 14,442 million, representing considering the consolidated result a loss of R$ 14,954 million, with no profit to distribute.

 

Due to the negative result raised for fiscal year ended on 31 Decemebr 2015 exceed the amount of the profit reserve and the legal reserve established by the Company, that on December 31, 2015 came to a total amount of R$2,233, respectively and, therefore, being insuficiente to fully absorb the loss posted in the fiscal year, in the terms of Article 189 of the Law of Corporations, Company Management proposes using the balance of the capital reserve, in the terms of article 200 of La of Corporations, to the amount of R$ 12,181.

 

 

[Finally, given the fiscal year of 2015 having posted a loss, in the terms of Ofício-Circular CVM/SEP/Nº02/2016 and decision of CVM I. Collegiate stated within the scope of Process CVM RJ-2010/14687, the Company shall not provide the information indicated in Annex 9-1-II of CVM Instruction 481.

 

 

2.3.  Elect members of the Board of Directors, and appoint the Chairperson among the members elected;

 

The Company Articles of Incorporation, in its Article 17, rules that the term of office for the members of the Company’s Board of Directors will be of 01 (one) year, with reelection being allowed.

 

So, considering that in the 55^th Annual General Meeting, held 30 April 2015, and in the 163^rd Eletrobras ExtraAnnual General Meeting, held on 31 August 2015, the current members of the Company Board of Directors were elected and that their respective terms of office would expire on the date the 2016 Annual General Meeting, a new election is required.

 

On this, the Company Articles of Incorporation, in its article 17, establishes that the Board of Directors will be comprised of 10 (ten) members, of which: (i) 06 (six) members appointed by the Ministry of State of Mines and Energy; (ii) 01 (one) member appointed by the Ministry of State of Planning, Budget and Management; (iii) 01 (one) member elected by the shareholders holders of ordinary shares with minority shareholding interests ; (iv) 01 (one) member elected shareholders of preferential shares, representing, at least, 10% (ten percent) of of the equity capital of the Company, through a separate vote, as established in the Law of Corporations; and (v) 01 (one) member elected by the Company employees, in procedure specifically carried out to this end, as per the current legislation.

 

 

Considering the election of the members to the Board of Directors, information on candidates appointed or supported by Management or by controlling shareholders, in the terms of items 12.5 to 12.10 of the Reference Template, as required by CVM Instruction 481, can be found in Annex 02 (Board of Directors) of this document.

 

In the terms of Ofício Circular/CVM/SEP/Nº02/2016, possible scenarios for election of members to the Board of Directors by non-controlling shareholders can be found in Annex 06 of this document.

 

2.4.  Elect members of the Fiscal Council and respective deputies ;

 

The Company Articles of Incorporation, in article 36, established that the Company Fiscal Council will operate permanently, comprised of 05 (five) members and their respective alternates with a term of office for its members of 01 (one) year, allowing for reelection.

 

So, considering that in the 55^th Annual General Meeting, held 30 April 2015, and in the 163^rd Eletrobras ExtraAnnual General Meeting, held on 31 August 2015, the current members and their alternates of the Company Fiscal Council were elected and that their respective terms of office would expire on the date the 2016 Annual General Meeting, a new election is required.

 

On the membership of the Company Fiscal Council, the Articles of Incorporation established that it shall be comprised by 05 (five) members and their alternates, to wit: (i) 01 (one) member and his/her alternatealternate appointed by the Ministry of State of Treasury, as representative of the National Treasury; (ii) 01 (one) member and his/her alternatealternate appointed by minority interest shareholders of ordinary shares and elected through a separate vote ; (iii) 01 (one) member and his/her alternate appointed by preferential shareholders and elected through separate vote; and the 02 (two) remaining members and their respective deputies elected following the majority interest principle, by shareholders of shares entitled to vote in attendance at the Annual General Meeting.

 

Considering the election of the members to the Fiscal Council, information on candidates appointed or supported by Management or by controlling shareholders, in the terms of items 12.5 to 12.10 of the Reference Template, as required by CVM Instruction 481, can be found in Annex 03 (Fiscal Council) of this document.

 

In the terms of Ofício Circular/CVM/SEP/Nº02/2016, possible scenarios for election of members to the Fiscal Council by non-controlling shareholders can be found in Annex 06 of this document.

 

2.5.  Set the overall compensation for the Administrators and members of the Company Fiscal Council .

 

The Law of Corporations and the Company Articles of Incorporation attribute to the General Assembly setting the overall compensation for administrators and members of the Fiscal Council. So, given the election of the new members of the Board of Directors and Fiscal Council of the Company, the overall compensation amounts for the administrators for the period corresponding to their term in office that extends to the next Annual General Meeting, must be established.

 

So, considering the responsibilities, the time dedicated to delivering their role, professional competence and reputation, the risks taken on and the market value for this type of service, the Company proposes that for the overall compensation of its members of the Board of Directors, Executive Board and members of the Fiscal Council, for the period corresponding to their term in office, to end in the next Annual General Meeting, the amount of:

 

a)    R$ 10,560,237.09 (ten million, five hundred and sixty thousand, two hundred and thirty-seven reais and nine cents) as overall amount to be destined and distributed to the members of the Executive Board and the Board of Directors; and

 

 

b)    R$ 434.245,40 (four hundred and thirty-four thousand, two hundred and forty-five reais and forty cents) as overall amount to be destined and distributed to the members of the Fiscal Council.

 

Considering the definition of the compensation for members of the Board of Directors, Executive Board and members of the Fiscal Council, the compensation proposal for members of the Board of Directors, Executive Board and member of the Fiscal Council is in detail in Annex 04 of this document and the information indicated in Section 13 of the Reference Template, as required by CVM Instruction 481, in Annex 05 of this document. 

 

 

Rio de Janeiro, March 30, 2016

 

 

 José da Costa Carvalho Neto

Director President

 

 

 

 

 

 

 

 

Annex 01

Management Comments on the Company’s financial status in the terms of Section 10 of the Reference Template

 

10.1 - General financial and equity conditions

 

a) General financial and equity conditions

 

The year of 2015 was marked by important progress with respect to corporate management and governance. In addition to the ongoing restructuring work in Eletrobras Companies, focusing on synergy in resources and in reducing expenses with Personnel, Materials, Services and Others (PMSO) and permanent actions in enhancing corporate sustainability, Eletrobras has also made progress in transparency and prevention of irregularities.

 

Eletrobras total investments were of R$ 10.4 billion, of which R$ 6.1 billion in corporate investments and R$ 4.3 billion through participation in Specific Purpose Entities (SPEs). In 2015, Eletrobras invested, through corporate investments or SPEs, R$ 5.675 billion in generation, 76% of the R$ 7.461 billion approved in the 2015 plan. In transmission, R$ 3.414 billion were invested, 80% of the R$ 4.270 billion approved for the 2015 plan. Eletrobras distribution companies invested R$ 1 billion in 2015, amount representing 60% of the plan for the period. In addition, R$ 301.33 million were invested in research, infrastructure and environmental quality.

 

Eletrobras and its partners implemented, in 2015, 2,975 MW, around 43% of the growth in the Brazilian installed capacity. In so far as the company’s own installed capacity, 1603 MW started operating through hydropower, solar and wind energy units. Individually and through SPEs, the company has contracted ventures in construction, to start up and in testing, that will add 16.8 GW to the Brazilian power matrix by 2019, in their majority of clean and renewable energy sources. Of this total, Eletrobras is responsible for 10.5 GW, of which 2.3 GW in corporate ventures, and 8.2 GW correspond to the ratio of its participation in SPEs.

 

In transmission, the company also has, individually or through SPEs, contracted ventures, to start or under construction, that, by 2019, will add to the Brazilian National Interlinked System (SIN) round 10.6 thousand kilometers of transmission lines. Of this total, Eletrobras is responsible for around 7.3 thousand kilometers, of which 3.6 kilometers in corporate ventures and 3.7 kilometers correspond to the ratio of its participation in SPEs. In 2015, Eletrobras ventures added 1,126 kilometers to SIN, of which 503 kilometers correspond to the ratio of its participation in ventures.

 

In distribution, distribution companies had an increase of 200,845 new customers. CELG-D had the largest increase with 85,306 new customers.

 

The investment budget for 2016 is planned at R$ 13.2 billion, with R$ 10.5 in corporate investments and R$ 2.7, in investments through SPEs. This amount is coherent for a company that, by 2030, intends to be among the 3 largest global companies in clean energies and among the 10 largest in world’s power sector.

 

Notwithstanding these endeavors, Eletrobras consolidated result was negative in R$ 14,954 awaiting on consolidation of results]. This result is owed largely to the following atypical factors: impairment charges for some investments, in particular the Angra 3 Thermal Nuclear Plant and provision for payment of legal claims in connection with compulsory loans, in addition to the negative results achieved by the distribution companies. On the positive side, an increase of 8.1% in net operating revenues can be highlighted. For 2016, expectations are positive in so far as concerns the reversal of this result, by more in-depth cost reduction measures, regulation of the reception of the 2^nd tranche of indemnities of Law nº 12.783/2013 and the new investments made by the company, which will start generating new revenues.

 

 

In 2015, an important aspect in Eletrobas economic sustainability made progress: Aneel signed off on the amounts for the indemnities of the Basic Grid of Existing Systems (RBSE) for the amount of R$ 9 billion for Furnas and R$ 1 billion for Eletrosul. Eletronorte and CHESF also presented their indemnity claim statements and await on ANEEL position, their claims were for R$ 2.9 billion and R$ 5.6 billion, respectively.

 

Another standout was the generation subsidiaries joining the power sector agreement for mitigation of hydrology risks that have affected the results of the operations in recent years due to the low level of hydraulic availability registered.

 

In December, the 164^th Eletrobras ExtraordinaryGeneral Meeting approved the extension of CEG-D distribution services concession contract and the divestment of Eletrobras shareholding interest in this company. The conditions for extension of concessions in the other Eletrobras distribution companies were also discussed, however, as requested by the majority shareholder, the decision on this aspect has been postponed until July 2016.

 

This period also saw an increase in Eletrobras’s international activity. In addition to the progress in works of the Transmission Lines that will increase transmission capability between Brazil and Paraguay, the company signed a number of international agreements in the area of energy and concluded the installation of the wind generation park of Artilleros, in Uruguay, as a member of SPE ROUAR S.A., also including UTE.

 

In 2015, continuity was given to the implementation of the Anti-corruption program of the Eletrobras Companies, a set of actions that target identifying, correcting and preventing, on a continuous base, frauds and corruption, thereby guaranteeing compliance with Anti-corruption Legislation by the companies, their staff, formally appointed representatives, partners in joint ventures and other affiliates of Eletrobras.

 

In addition to adapting to the Foreign Corrupt Practices Act (FCPA), North American legislation against corruption, Eletrobras gave continuity to adaptation to Law no. 12,846, of 1 August 2013, known as the Brazilian Anti-Corruption Law. Each of its subsidiaries has at least one compliance manager and one assistant. Throughout 2015, the Hogan Lovells law firm acted independently, investigating the eventual existence of irregularities in violation of the North American Foreign Corrupt Practices Act (FCPA) OF 1977, the Brazilian Anti-Corruption Law and Eletrobras Companies Code of Ethics, in ventures in which Eletrobras Companies participate corporately or through SPEs. Investigations continue in 2016 and are tracked by an external committee with members having high levels of technical and legal knowledge. This shows Eletrobras’s firm commitment to transparency, with the progress of these works being one of the Company’s main objectives for 2016.

 

The presence in the new ISE portfolio and in the Dow Jones reflects the endeavor of Eletrobras companies and of its professionals in continually promoting the enhancement of its corporate practices, based on ethics, on transparency and on corporate social and environmental responsibility. These reinforce that is addressing its mission of acting in an integrated manner in the power markets, profitably and sustainably, fuly compliant with its corporate values: focus on results; ethics and transparency; entrepreneurial behavior and innovation; sustainability and valuing and commitment from people, since it is thanks to the talent and commitment of its employees and the priceless partnership of its relationship audiences that, Eletrobras is Latin America’s largest, publicly traded power company in value of assets.

 

Assessment of Indicators

 

The table below shows the progress of indicators that Management feels to be important in evaluating the Company and its financial and equity status:

 

 

 

 

There has been a positive evolution in the Eletrobras current liquidity index between December 31, 2013 and 2014 stemming, in particular, from a reduction in current liability, going from R$ 25.6 billion on December 31, 2013 to R$ 19.3 billion on December 31, 2014. The only indice to deteriorate in 2015, due in particular to an increase in current liability, corresponding to R$ 28.1 billion on December 31, 2015, as compared to R$ 19.3 billion on December 31, 2014.

 

As far as the evolution of the net debt, it is possible to observe an increase going from a negative amount of R$ 2.3 billion on December 31, 2013 to R$ 15.4 billion on December 31, 2014 and R$ 16.7 billion on December 31, 2015, mainly due to the increase in the Gross Financial Debt in this period, going from, respectively, R$ 24.3 billion on December 31, 2013 to R$ 32.9 billion on December 31, 2014 and R$ 40.6 billion on December 31, 2015, especially due to the increased need to take out loans and financing to face the Company’s investment needs for the period, to supplement the funds generated from the operating cash

 

The assessment of the immediate liquidity indices shows that the Company capability to bear its short-term commitments remained practically stable, corresponding to 0.86, 0.91 and 0.85 on December 31, 2013, 2014 and 2015, respectively. This was possible due to the reduction in the current liability in the first two years assessed, corresponding to R$ 25,6 billion on December 31, 2013 and R$ 19.3 billion on December 31, 2014, aggregate to the Availabilities management for the same period, going from R$ 22.0 billion on December 31, 2013 to R$ 17.5 billion on December 31, 2014 and the increase in Availabilities to R$ 23.8 billion on December 31, 2015, given the increase in the current liability to R$ 28.1 billion on December 31, 2015 thus enabling the stability for this indice in the dates in case in point.

 

Finally, net leverage went from 27.1% on December 31, 2014 to 40.1% on December 31, 2015, when on this date in 2013, it was 3.6%. Eletrobras Board feels the increase in this indicator took place due to the need to take on financial debt to face the needs imposed by the corporate investment plan, that could not be totally born by the cash generation.

 

With respect to this item 10 of the Reference Template, we hereby clarify that, based on guidance in Circular Letter/CVM/SEP/Nº02/2016, amounts disclosed are in connection with Eletrobras consolidated accounting data.

 

 

 

 

b) capital structure

 

 

Own and Third-party capital

 

 

Eletrobras ended the year of 2015 with a net debt of approximately R$ 16.7 billion as compared to a net debt of R$ 15.4 billion on December 31, 2014 and a net debt of R$ 2.3 billion on December 31, 2013. Eletrobras long-term debt, excluded amount corresponding to the Global Reversal Reserve (Reserva Global de Reversão - RGR), corresponded to 37.9% of the total Company debt on December 31, 2015.

 

The table below shows the calculation for Eletrobras net debt for the periods shown:

 

 

The indicator defined by the ratio between third-party liabilities and total liability went from 60.7% on December 31, 2014 to 72.1% on December 31, 2015 (56% on the same date in 2013). In addition, due to its specific characteristics (as manager of the sector fund Global Reversal Reserve - RGR – thereby being entitled to self-refunds), Eletrobras has a number of entries in its liabilities with corresponding assets.

 

The ratio between total financing from own capital sources and those from third party capital for fiscal years ended on December 31, 2013, 2014 and 2015 was of, respectively 79.95%, 64.76% and 38.68%. The table below shows the evolution of these indicators across the fiscal years ended on December 31, 2013, 2014 and 2015:

 

 

c) payment capacity for existing financial commitments

 

Eletrobras main needs in resources are in reference to (i) payment or rolling of debts, (ii) financing for its ventures in generation, transmission and distribution and (iii) the possibility of participating, through its subsidiaries, in auctions for new transmission lines and new generation contracts, given that, should Eletrobras be successful in any of these auctions, additional funds will be required to bear the investment costs required to expand the applicable operations.

Similar to other companies in the sector, the Company monitors its commitments based on the financial leverage index. This index corresponds to the net debt divided by the total capital. The net debt, in its turn, corresponds to the total of loans and financing (excluded amounts in connection with RGR but including short and long-term loans, as shown in the consolidated equity balance sheet), subtracted the cash and cash equivalent amounts. Total capital is calculated by adding the net equity, as shown in the consolidated equity balance sheet, to the net debt.

 

 

Eletrobras risk grading, by the risk grading agencies, is directly linked to the risk grading given to Brazil, since the union is the majority shareholder of the Company. On December 31, 2015², Eletrobras risk grading was the one shown below:

 

The Company Board understands that Eletrobras displayed, on December 31, 2015, financial and equity conditions capable of honoring its financial commitments by way of the combined deployment of its operational cash flow, reception, of all the indemnities already approved by the granting power as a result of Law no. 12,783/2013 (1^st tranche) and funds resulting from loans and financing already contracted or that may be contracted in case of need.

 

*On 25 February 2016, Moodys, downgraded Eletrobras rating to“Ba3”, with negative prospects, due to the downgrading of the country’s sovereign rating (Brazil). On 17 February 2016, Standard & Poor’s downgraded Eletrobras rating to BB, with negative prospects, due to the downgrading of the country’s sovereign rating (Brasil).

 

d) sources of funding used for working capital and for investments in non-current assets

 

The main sources of funding for working capital and investment in noncurrent assets by Eletrobras in the last 3 (three) years were: (i) indemnities a stemming from concessions renewed under the terms of Law no. 12,783/2013 already signed off by the granting power (1^st tranche); (ii) amounts to be refunded stemming from the sales of energy generated by Itaipu; (iii) amount to be collected in connection with financing granted by Itaipu, (iv) its own generation of operational cash flow, (v) loans received from different national and international sources, such as Caixa Econômica Federal (“CEF”), Banco do Brasil S.A (“BB”) and Banco Nacional de Desenvolvimento Econômico e Social (“BNDES”) and (vi) funds from International Credit Agencies. In addition, there are a number of financial investments made by Eletrobras at BB, bearing in mind that Eletrobras is obliged by law to deposit in the federal banks BB and CEF any funds a stemming from its cash availability.

 

Another source of funds corresponds to the indemnities stemming from concessions renewed in the terms of Law no. 12,783/2013 signed off by ANEEL, however pending definition on the payment form and conditions by the granting power (2^nd tranche). Eletrobras management believes that, should the indemnities approved be signed off by the granting power for payment beginning in 2016, the Company would be capable of funding is working capital needs as they occur.

 

The table shows, for the periods indicated, the progress of the generation of operational cash flow and the gross indebtedness of Eletrobras:

 

 

 

 

From time to time, Eletrobras considers new potential investment opportunities and may fund these investments with funds generated by its operations, loans, in international capital markets, increase in equity capital or other sources of funding that may be available at the time.

 

e) sources of funding used for working capital and for investments in non-current assets intended to use in covering liquidity shortfalls

 

If it becomes necessary to raise funds to perform investments in noncurrent assets, Eletrobras may obtain funding from BNDES, CEF, BB, multilateral agencies such as, for example, the Interamerican Development Bank (IDB), the International Reconstruction and D will k (IRDB), the Corporación Andina de Fomento (CAF) and the Japan Bank for International Cooperation (JBIC), in addition to operations in financial institutions, in particular in the “A/B Loan” modality (which consists in granting part of the loan by a multilateral institution and parts by a syndication of institutions), and to issue bonds on the international capital markets.

 

Timelines for financing, loans or bonds to be issued must be compatible with the construction timelines for Eletrobras’s projects in generation and transmission of energy, in the same way that the cost must be adequate to the project cash flow, considering the characteristics of the competition in energy generation and transmission concession auctions.

 

f) levels of indebtedness and characteristics of these debts, describing: (i) relevant contracts in loans and financing; (ii) other long-term relations with financial institutions; (iii) degree of subordination among the debt; and (iv) eventual constraints imposed on Eletrobras, in particular, with respect to levels of indebtedness and contracting of new debt, the distribution of dividends, the lien on assets, the issuance of new securities and the lien on shareholding control, as well as whether the issuer has been compliant with all these constraints;

 

(i) relevant loan and financing contracts

 

Financing taken by the Company:

 

Financing attracted by Eletrobras corresponds, in particular, to financing contracted from BNDES, Caixa Econômica Federal and Banco do Brasil, as well as multilateral international agencies, such as IDB, IRDB, CAF and JBIC. Said contracts follow the standard clauses usually applicable to contracts with multilateral agencies, which are agreed in negotiations with these entities, and generally count with collateral provided by the Union. Eletrobras has also issued bonds on the international capital markets.

 

Financing and loans contracts entered by Eletrobras, as well as international bonuses issued by the Company, were signed in accordance with practices adopted by the international market for operations of this type. The obligations taken on (“covenants”) are usually contained in contracts with companies with the same type of credit risk when these were contracted, among which the following are mentioned: the existence of corporate guarantees, requirements for shareholding control changes, obligation for timely delivery of the Complete Financial Statements in accordance with Brazilian legislation, compliance with licenses and authorizations required and constraints for significant sales of assets .

 

Eletrobras Companies, on December 31, 2015, were parties to liability contracts, among loans, financing and bonuses, for a total of R$46.4 billion of which R$4.2 billion representing short term obligations and R$42.2 billion corresponding to long-term obligations (R$ 39.5 billion on December 31, 2014 and R$ 32.6 billion on December 31, 2013), with the following composition in foreign currency:

 

16

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The next table shows the payment schedule for loans, financing and bonus, for a total of R$46.5 billion, on December 31, 2015:

 

 

On December 31, 2015, the following relevant financial contracts were in force for Eletrobras (controller):

 

(a) IDB: Loans obtained from IDB, on April 1998, for the amount of USD 307.0 million, with aval from the Union, with a twenty-year term. The interest rate with this contract is comprised by the IDB spread (based on the historic cost and current level of indebtedness of the bank) with a rate of 3.69%, fixed since 2010 (based on LIBOR on the date of conversion, offered by IDB), with the average rate for the servicing in the year of 2014 was 4.54%. Payment of interest and principal for the loan is performed every six months in the months of April and October. The balance outstanding for this financing on December 31, 2015 was R$ 181.6 million.

 

(a) JBIC: Loan obtained from Eximbank, former name of the Japan Bank International Corporation, with aval from the Union, for the amount of ¥4.5 billion, equivalent, at the time the contract was signed, to USD 300.0 million, with a 20-year term and variable interest rates equivalent to the JLT Prime rate, plus a spread of 0.2%. Payment for interest in connection with the loan is performed every six months, on the months of April and October. The outstanding balance for this financing on December 31, 2015 was of R$ 177.9 million.

 

(b)    KfW: Loan obtained from Kreditanstalt für Wiederaufbau – KfW, with aval from the Union, for the amount of €13.3 million, with funds originating from negotiations of protocols for financing projects in renewable energies, taking place in the years of 2000 and 2001, that resulted in signing of the Financial Cooperation Agreement between the governments of Germany and Brazil, on 27 November 2003. The signature of the contract in connection with the first tranche on 12 December 2008. The loan has a thirty-year term and the interest rate is of 2%. Interest in connection with the loan is paid every six months, in the month of June and December. Payment of the principal begins only starting in December 2018. On 01 November 2012, the second tranche of the financing contracts was signed with KfW, for the amount of €45.9 million, with guarantees from the Union, and a five-year grace period, for a total term of thirty years. A interest rates practice in this financing is of 2.93% a.a. Funds will be targeted, by pass-through from Eletrobras, to the São Bernardo Complex Project, belonging to controlled company Eletrosul, with a view to implementing four Small Hydroelectric Plants (Pequenas Centrais Hidrelétricas - PCHs), in the State of Santa Catarina. The outstanding balance for this financing on December 31, 2015 was of R$ 195.3 million.

 

 

(c) China Development Bank / BNP Paribas: Loan from the China Development Bank and BNP Paribas, signed in April 2007, for the amount of USD 430.0 million, with funds being deployed in financing the Thermal Generation Plant of Candiota II, from subsidiary CGTEE. The pass-through contract was signed between this subsidiary and Eletrobras. The funds from this loan had been fully withdrawn by May 2010. No guarantees proposed. Payment of the interest and the principal for the loan is performed every six months, in the month of June and December. The outstanding balance for this financing on December 31, 2015 was of R$ 822.0 million.

 

(d)  Syndicated loan in modality “A/B loan”, via CAF: Syndicated loan in modality “A/B loan”, obtained from CAF in August 2008. The loan, for the amount of USD 600.0 million, was structured as follows: (i) Part A, USD 150.0 million, directly from CAF, with a 12-year term; and (ii) Part B, corresponding to USD 450.0 million, from a sixteen-bank syndication, with a 7-year term. The interest rate contracted is comprised by the variation of LIBOR plus a spread of 2.05% for part A and 1.5% for Part B). No guarantees were posted. Payment of the interest and the principal for the loan is performed every six months, in the months of February and August. On December 31, 2015, the outstanding balance for this financing was of R$ 344.5 million.

 

(e) CAF and BBVA, HSBC, Mercantil, Santander, Sumitomo Mitsui Banking Corporation and Bank of Tokyo-Mitsubishi: In November 2010, Eletrobras concluded contracting for a syndicated loan of USD 500.0 million, in modality “A/B loan”, from CAF and the banks BBVA, HSBC, Santander, Sumitomo Mitsui Banking Corporation and Bank of Tokyo-Mitsubishi. The operation was structured so that Part A, of USD 125.0 million, was CAF’s responsibility, while Part B, of USD 375.0 million, was provided through a syndicate comprised of the other banks. The loan has a settlement term of ten years for Part A and seven years for Part B. The interest rate contracted is comprised of the variation of LIBOR plus a spread of 3.4% for Part A and 1.475% for Part B). Payments for the interest in connection with the loan is performed every six months, in the months of May and November. The outstanding balance for these financing operations via CAF on December 31, 2015 was of R$ 1.2 billion.

 

(f)  World Bank: Loan obtained from the World Bank, for the amount of USD 495.0 million, with aval from the Union, and the contract was signed on 24 February 2011. The funds will be deployed in financing the Energia + Project, with the main objective of improving the quality of services provided and contributing to achieving and maintaining the economic-financial balance for the Eletrobras energy distribution companies. The loan is guaranteed by the National Treasury. Payment of the interest in connection with the loan is performed every six months, in the months of March and September. The principal will only begin to be settled starting in March 2016. The outstanding balance for this financing operation on December 31, 2015 was of R$ 866.1 million. There are still USD 273 million in funds to be withdrawn.

 

 

(g) BNDES: On 24 June 2013, Eletrobras signed with the Banco Nacional de Desenvolvimento Econômico e Social (BNDES) a Banking Credit Note (Cédula de Crédito Bancário – CCB), for the amount of R$ 2.5 billion, remunerated at the Selic Rate plus a spread of 2.5%. The contract term is of 05 (five) years and has a grace period of twelve months being amortized in 8 successive, six monthly installments. The funds were targeted at working capital and the operation is guaranteed by the Union. The first withdrawal of this loan, for the amount of R$ 2.0 bilion, to place on 28 June 2013. The second withdrawal, for the amount of R$ 500 million, took place on 16 December 2013. The outstanding balance for this contract on December 31, 2015 was of R$ 2.5 billion.

 

(h) Caixa Econômica Federal and Banco do Brasil: The loan was contracted in August 2014 from Caixa Econômica Federal, Banco do Brasil by Eletrobras, for the amount of R$ 6.5 billion, with guarantee by the Union, of which R$ 4.0 billion given by Banco do Brasil and R$ 2.5 billion by Caixa Econômica Federal. The term of the operation is for eight years, with two years grace period, counted from the disbursements. The amortization of the principal be monthly, and compensation will be of 119.5% CDI. The operation targets deployment in working capital and financing of investments for the Eletrobras Companies in accordance with PDG/2014. The total amount has been released. The outstanding balance for these operations on December 31, 2015 was of R$ 6.5 billion.

 

(i)  Notes - Bonus:(a) Credit Suisse and Santander: On October 27, 2011, Eletrobras finalized a bonus launch operation on the international market, for the amount of USD 1.75 billion, with banks Santander and Credit Suisse as global structuring for this operation. The bonds were issued for a 10-year term, maturing on October 27, 2021, with total redemption on maturation and a six monthly interest coupon at a rate of 5.75% a year. There was no discount on issue once, which enabled obtaining a yield, return for the investor, at a rate equivalent to the coupon’s of 5.75% a year; (b) Credit Suisse: Eletrobras concluded on July 30, 2009 a bonus issuance operation on the international market, for the amount of USD 1.0 billion, with bank Credit Suisse running the global structure for the operation. The bonds were issued with a 10-year term, maturing on 30 July 2019, with total redemption on maturation and a six monthly interest coupon at a rate of 6.875% a.a. The outstanding balance for these operations on December 31, 2015 was of R$ 10.7 billion.

 

For more information about the bonuses issued by Eletrobras offshore, see section 18.5 of the Eletrobras Reference Template.

 

Additionally, on December 31, 2015, the following relevant financial contracts were in force at Eletrobras subsidiaries:

 

(a) BID: Furnas signed, on 22 December 2011, financing from the Interamerican Decelopment Bank – IDB financing for the amount of US$D 128.6 million. Financing has a 20-year term, with a 4-year grace period and interest rate based on the LIBOR rate and incurring on the outstanding balance. The Union guarantees this financing operation. On December 31, 2015, the outstanding balance for the contract was of R$ 471.6 million.

 

(b) BNDES: BNDES finances a number of corporate projects for the Eletrobras Companies, such as the hydroelectric generation plants of Batalha, Simplício, Baguari and Tucuruí and the Angra 3 thermal nuclear generation plant, in addition to other expansion and maintenance projects. These financing operations feature a cost in the interval between TJLP and TJLP +4% a.a. and repayment terms out to 2036 (average term for the debt is of 15.5 years). On December 31, 2015, the outstanding balance for the contracts was of R$ 6.1 billion.

 

 

(c) Caixa Econômica Federal: Eletronuclear signed with Caixa Econômica Federal, in 2013, finance contract for the amount of R$ 3.8 billion, to acquire imported equipment and pay offshore services in connection with the construction of the Thermal Nuclear Plants of Angra 3. However, the contract came in force only in 2015, when the negotiations with the Federal Union were finished so that it would provide guarantees for Eletronuclear against the posting of counter-collateral. As counter-collateral, Eletronuclear pledges to the Union receivables for the ventures of Angra 1 and Angra 2. The contract has a fixed interest rate of 6.5% a year, with repayment term of 25 years, and a 5-year grace period. On December 31, 2015, the amount of R$ 1.98 billion had been withdrawn and, on that same date, the outstanding balance was of R$ 2.0 billion.

 

(d) Banco do Brasil: Furnas, Eletrosul and Chesf together have corporate financing from Banco do Brasil that on December 31, 2015 had an outstanding balance of R$ 2.0 billion. These financing operations mature between February 2018 and December 2023 and the cost is linked to CDI plus spread varying between between 1% a.a. and 2.12% a.a.

 

Financing obtained by Eletrobras is split into contracts with guarantees and without guarantees. When guaranteed, the collateral modalities used are (i) corporate guarantee; (ii) guarantee posted by the Federal Union, with post of counter-collaterals; or (iii) real guarantee (in particular, fiduciary cession of credit rights or pledge of receivables).

 

Financing contracted from CAF, JBIC, BNP/CDB, and bonuses issued offshore do not feature guarantees and, on December 31, 2015, hand a total debit balance of R$ 13.3 billion;

 

In their turn, financing from EXIM Bank, KfW, and the World Bank received guarantee from the Federal Union and, on December 31, 2015, had a total outstanding balance of R$ 1.3 billion.

 

Additionally the guarantee provided by the Federal Union for the Eletrobras Holding contracts signed with BB/CEF and BNDES have, as counter-collateral for the Federal Union, pledge of receivables in connection with financing Contracts signed with Itaipú.

 

The same occurs, as per the above set out, with the contract signed between Eletronuclerar and Caixa Econômica Federal. In this contract, the Federal Union is the guarantor and, as counter-collateral, Eletronuclear pledged receivables in connection with the sale of energy generated by the thermal nuclear plants of Angra 1 and Angra 2.

 

Finally, contracts signed by controlled companies Chesf and Eletronorte with BNDES, in addition to the Eletrobras corporate guarantee, have an additional guarantees based on the fiduciary cession of receivables for the Annual Generation Revenue – RAG that Chesf is entitled due to the availability of the Physical Guarantee and the Power of the hydroelectric plants of Luiz Gonzaga (Itaparica), Boa Esperança (Castelo Branco) and Xingó, and based on the fiduciary cession of credit rights stemming from the Electric Energy Purchase and Sale Contract (Contrato de Compra e Venda de Energia Elétrica – CCVE) no. DEL-1327, signed in the Free Environment, between Eletronorte and BHP Billiton Metais S/A, for Eletronorte. On December 31, 2015, these contracts had a total debit balance of approximately R$ 835 million.

 

Guarantees provided by Eletrobras

 

Guarantees within the scope of the ANEEL Auctions

 

 

Eletrobras Companies were successful in a number of ANEEL auctions held in recent years, and, consequently, will be responsible for the execution of projects in the areas of generation and transmission, individually or in partnerships signed through specific purpose entities – SPEs in which they are part, in their majority with shareholding interests of up to 49% (forty-nine percent).

 

Therefore, in order to define the financing structure for said project, SPEs negotiated financing operations with the Banco Nacional de Desenvolvimento Econômico e Social – BNDES, for which Eletrobras granted corporate guarantees, limited to the pro rata participation of its subsidiaries in the equity capital of SPEs.

 

These financing operations are inserted within the logic of “Project Finance”, through which receivables stemming from the project itself are capable of guaranteeing the debt.

 

However, given that during the construction period these receivables cannot be realized, financing entities required a corporate guarantee throughout this stage, with this guarantee being released until each SPE is capable of showing that receivables stemming from the operation of the ventures are capable of withstanding the financing amortization flow.

 

This means that, in practical terms, SPEs presented as guarantee for the financing: (i) corporate guarantees from partners for the construction period, on a pro rata basis based on the respective share of the company’s equity capital; (ii) cession of project receivables; (iii) shares or representative quotas of the venture company’s equity capital, belonging to the partners.

 

The table below shows the guarantees granted to the Eletrobras subsidiaries and SPEs in which Eletrobras companies have shareholding interests, for ventures in construction stage, as raised on December 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

Other guarantees not linked to projects

 

 

 

 

(ii)      Other long-term relations with financial institutions

 

On December 31, 2015, Eletrobras had no other relevant long-term relations with financial institutions other than the ones informed in the previous item.

 

(iii)     Degree of subordination among debts

 

Eletrobras are guaranteed by the Federal Union, by way of real guarantees (notably pledge of receivables) or have no guarantee whatsoever. Eletrobras subsidiaries guarantees are provided largely by Eletrobras, through bond or Aval, with also cases of provision of real guarantees on bonds representing the equity capital of SPEs and/or receivables.

 

Considering the total amount of the current and noncurrent liability of the Company, the amount of R$93.1 billion corresponded to the obligation of unsecured nature on December 31, 2015 (as compared to R$ 78.1 billion on December 31, 2014 and R$ 72.5 billion on December 31, 2013). In its turn, the amount of R$14.8 billion corresponded to guaranteed obligations through real rights on December 31, 2015 (as compared to R$9.7 billion on December 31, 2014 and R$4.5 billion on December 31, 2013).

 

Among the debts guaranteed by the Union, in two of them, the Banking Credit Note signed with BNDES for the amount of R$ 2.5 billion and the Banking Credit Notes signed with Banco de Brasil and Caixa Econômica Federal, for the amount of R$ 6.5 billion, Eletrobras presents as counter-collateral to the Union, the pledge of credits receivable from Financing Contracts signed between Eletrobras and Itaipu.

 

 

 (iv)    Contractual Constraints

 

Eletrobras as debtor

 

Loan and financing contacts signed by Eletrobras, as well the international bonus issued by the Company, were performed in accordance with the practices adopted on the international market for operations of this type. Obligations taken on (“covenants”) are those usually found in contracts with companies with the same type of credit risk when they were contracted.

 

For contracts type “A/B loan”, for international bonus, for syndicated loan between CAF and comercial banks, Eletrobras is subject to the clauses usually practiced by the market, among which we highlight: the existence of corporate guarantees, requirements for changes in shareholding control, obligation for timely delivery of the Complete Financial Statements in accordance with Brazilian legislation, compliance with licences and authorizations needed and constraints on the sales of significant assets.

 

 

In fiscal year ended on December 31, 2015, Eletrobras complied with all covenants to which it was subject due to financing contracts signed as the debtor party.

 

Eletrobras as the guarantor

 

As mentioned above, Eletrobras is the guarantor and co-signor in financing operations for both corporate ventures for companies in its subsidiairies as well as SPEs, in which Eletrobras has shareholding interest. In four contracts, there are specific covenants applicable to the guarantor, to wit:

 

• Furnas (Baguari hydroelectric power plant) - Financing contract signed with BNDES, for the nominal amount of R$ 224 million, in which Eletrobras is the guarantor for Furnas (main debtor), and contains an obligation that Eletrobras complied, every quarter, with a minimum capitalization index (corresponding to the ratio between its Net Equity and its Total Assets) of 0.3.

 

• Furnas (Batalha hydroelectric power plant) - Financing contract signed with BNDES, for the nominal amount of R$ 60,1 million, in which Eletrobras is the guarantor for Furnas (main debtor) and contains an obligation that Eletrobras complied, every quarter, with a minimum capitalization index (corresponding to the ratio between its Net Equity and its Total Assets) of 0.3.

 

• Centroeste de Minas S.A. (SPE) – Financing contract signed with BNDES, for the amount of R$ 28.7 million, in which Eletrobras is the guarantor on a pro rata basis for the shareholding interest held by Furnas in the SPE (49%). This contract contains an obligation that Eletrobras complied, every quarter, with a minimum capitalization index (corresponding to the ratio between its Net Equity and its Total Assets) of 0.3.

 

• Teles Pires Participações S.A. (SPE): First private issuance of debentures, for the amount of R$ 650 million, in which Eletrobras is the guarantor on a pro rata basis for the shareholding interest held by Furnas and Eletrosul in the SPE (49%) and FI-FGTS is the only debenture holder. The issuance document includes an obligation by Eletrobras to maintain, during the term of the debentures, (i) a ratio between Net Debt and EBITDA equal to or lower than 4.0 (four), calculated on a quarterly basis; and (ii) the ratio between EBITDA and the Financial Result equal to or higher than 2 (dois), calculated on a quarterly basis.

 

For the fiscal year ended on December 31, 2015, noncompliance with the financial covenants determined in the first of the venture issuance by Teles Pires Participações S.A. was observed. This lack of compliance is described in the instruments that regulate the issuance as a hypothesis for non-automatic advance maturation of the debt. After the Company’s explanations in terms of the negotiations undertaken to settle this situation, including through reinforcements posted by Eletrobras, the “Fundo de Investimento do Fundo de Garantia do Tempo de Serviço” - FI-FGTS, the only debeture holder within the scope of said issuance, deliberated in March 29, 2016 the suspension of the declaration of accelerated maturity of the debt for 180 (one hundred and eighty) days. If this time runs out and the situation remains pending settlement, FI-FGTS shall manifest its position with respect to accelerated maturity of the debt.

 

g) limits for deployment of existing financing and percentage of use

 

For the loan raised from the World Bank – BIRD, for the amount of USD 495.0 million, co-signed by the Union, signed on 24 February 2011. The funds will be used in financing “Projeto Energia +” with the objective of improving the operational and commercial quality of Eletrobras distribution companies, until December 31, 2015 disbursements of USD 222 million had been made within the scope of this operation, corresponding to 44.85% of the total contracted.

 

 

On 28 June 2013, Eletronuclear signed a financing contract with Caixa Econômica Federal, for the amount of R$ 3.8 billion, whose funds will be applied in acquiring imported materials and services for the Angra 3 Plant. The contract, guaranteed by the Union, has the following conditions: interest of 6.5% a.a. and a 25-year (twenty-five) term, with a 5-year (five) grace period, starting on the date of signature. On December 31, 2015, the amount of R$ 2.0 billion had already been withdrawn and, on the same date, this amount also corresponded to the debit balance for the contract.

 

h) significant changes in each item of the financial statements

 

Eletrobras financial statements were drafted and are published in according with accounting practices adopted in Brazil, compliant with Brazilian Corporate Law, and are aligned with the disposition of Law of Corporations – Law no. 6404/1976 and its posterior amendments, addressing the Statements issued by the Accounting Statements Committee (Comitê de Pronunciamentos Contábeis - “CPC”), decisions of the Federal Accounting Council (Conselho Federal de Contabilidade - “CFC”), as well as applicable regulation from the Securities Exchange Commission (Comissão de Valores Mobiliários - “CVM”) and the National Electric Energy Agency (Agência Nacional de Energia Elétrica - “ANEEL”).

 

Eletrobras consolidated financial statements are published in thousands of reais, except where expressly indicated otherwise, and are aligned with the International Financial Reporting Standards (“IFRS(s)”).

 

Eletrobras Financial statements include:

 

§  The consolidated Financial Statements, drafted based on the IFRSs published by the International Accounting Standards Board - IASB and the accounting practices currently adopted in Brazil, identified as Consolidated - IFRS and BR GAAP; and

 

§  The individual Financial Statements of the controller drafted in compliance with the accounting practices currently adopted in Brazil, identified as Controller - BR GAAP.

 

Accounting practices currently adopted in Brazil comprise those included in the Brazilian corporate legislation as well as Statements, Guidance and Interpretation issued by CPC and CVM and CFC.

 

The other effects of the adoption of the IFRSs and of the new statements issued by CPC can be consulted in item 10.4 of the Reference Template.

 

Fiscal year ended on December 31, 2013

 

With respect to the fiscal year ended on December 31, 2013, Eletrobras changed the form of showing it segments, in order to better illustrate the operations in each segment and better reflect the way in which it manages its business. In the terms of the new segment reporting structure, Eletrobras continues to segment its main operations in the Brazilian energy generation, transmission and distribution markets. However, the Company will no longer offset balances of operations between segments. This is a change with respect to the previous fiscal years, in which the balances of segments were presented net of the offsetting performed between them.

 

The Company management has revised the calculation for the adjustment to present value of the merchant leases for the assets of the independent energy producers, having energy supply contracts with the subsidiary Amazonas Energia, and identified inaccuracies to be corrected retrospectively, as foreseen by Technical Statement CPC 23 – Accounting Policies, Changes in Estimates and Error Correction. So, the figures in connection with fiscal years ended on December 31, 2013 and on January 1, 2013, shown for comparison purposes, are being published again. In this way, for the purpose of ensuring comparability, figures in connection with the fiscal year ended on December 31, 2013 found in this item 10 have been adjusted based on the effects described above.

 

 

In 2012, the Federal Government published Provisional Measure no. 579/2012, converted into Law no. 12,783/2013, that significantly changed the Brazilian power sector. The Law allowed holders of concessions to operate energy generation and transmission assets, with expiry scheduled for the period between 2015 and 2017, to renew said concessions for a maximum period of 30 years counted from 1^st January 2013, but subject to materially lower tariff levels. In 2013, there was a change in the revenue structure in so far as concerns the renewed generation and transmission concessions, establishing the separation of methods for exploration and operation, and maintenance, in the terms of Law no. 12,783/2013.

 

For these reasons, companies that renewed their generation and transmission concessions in the terms of Law no. 12,783/2013 received, in 2013, payment of lower terrace with respect to the renewed assets, as compared to the amounts received before the enactment of Law no. 12,783/2013. In renewing generation concessions, there is a new business model, in which the tariff covers only the standard operating and maintenance costs plus a margin of 10%, as compared to the non-renewed concessions, in which the concession holder could sell the energy generated.

 

Fiscal year ended on December 31, 2014

 

Finally, in order to better disclose its financial statements for fiscal year ended on December 31, 2014, Eletrobras reclassified certain items in its P&L statements, with reflexes on the comparative information in connection with fiscal year ended on December 31, 2013. Due to this reclassification, Eletrobras started to show its direct costs in specific field in the P&L statement, thereby comprising the gross profit.

 

Fiscal year ended on December 31, 2015

 

In fiscal year 2015, there were no material changes in the disclosure format for Eletrobras financial statements.

 

 

 

 

 

 

 

 

Consolidated balance sheets for December 31, 2015 e 2014: