Alupar Investimento S.A. (ALUP11) Earnings Call Transcript & Summary

Welcome, everyone, and welcome to Alupar Day 2021. My name is Luiz, and I will be your host today. And it's a privilege to be here with you this morning. To introduce Alupar's team. Today, we have here with us Mr. Paulo Godoy, CEO; Mr. José Luiz de Godoy Pereira, CFO; and Mr. Luiz Coimbra, Investors Relations Manager. And representing APIMEC, we have Mrs. Lucy Sousa, the CEO of APIMEC Brazil. I highlight that those that need simultaneous translation can use this tool on the platform by clicking on the button "interpretation" on the bottom of your screen and by choosing your preferred language, Portuguese or English. We inform you that this meeting is being recorded; and will be available on the IR's website of the company, ir.alupar.com.br (sic) [ ri.alupar.com.br ]. [Operator Instructions] We inform that any forward-looking statements made during this presentation relative to the company's prospects, projections and operating and financial targets are based on the beliefs and premises of the company's management as well as on information currently available. These forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and premises since they refer to future events and may therefore depend on circumstances that may or may not occur. Investors must understand that general economic conditions, market conditions and other operating factors may affect the future performance of Alupar and lead to results that differ materially from those expressed in such forward-looking statements. Now I would like to hand the conference over to Mr. Paulo Godoy, CEO of Alupar, to start his presentation. Mr. Paulo, you may proceed.

I'd like to thank Lucy from APIMEC for being here. So this is today's agenda. We are going to give you an overview then the highlights that we elected for 2021. We are going to give you an overview of the projects that we developed in the past years, particularly in 2016 and 2017. We will talk about our new investment cycle, our ESG agenda. And finally, we are going to give you some financial information. The data that you see here has been well communicated during other meetings that we had with the market, but we must highlight that in transmission the company has reached 6,400 kilometers in operation. And we still have 1,521 kilometers under construction and implementation. And these include about [ 560 ] including PSM (sic) [ TSM ], [ 330 ]; plus [ AS, 235, 236 ]. And the [ 560 ] are already in its final stage, so we expect it to be ready in December, and [ AS ] in the first quarter 2022. And in these 1,500, we still have [ PME ] , which we will discuss today. TCE in Colombia and [ ELTE ] in the coast of the State of São Paulo. And in generation, we still have 174 megawatts in operation and -- 673 megawatts already in operation and 124 under construction, with 2 wind farms included and our first [ new FP ] also already in operation. As we know, we only have -- of all this portfolio, we only have [ one nice ] asset. All of the other assets have already been developed with this greenfield concept using the structure of the company itself. And we are also going to talk about our track record and our efficiency in the management of greenfield projects. One of the characteristics is the fact that we are a 100 (sic) [ 100% ] private company, and we're always proud when we talk about this characteristic of the company. The rest of these indicators, we are going to give you more details during today's presentation. And José Luiz and I, we are going to take turns to discuss the themes that we are going to discuss today. So now I hand it over to José Luiz. And then I come back later to tell you more about our performance in the previous years regarding the projects that we are building.

Good morning. Thank you for being present today for our Alupar Day, a meeting that we hold every year with APIMEC. It's a great opportunity to get together with investors to tell you more about the company and the challenges that we've had during the year. This has been a very complex year. We had different issues. We still have the pandemic impacting the economic activity, particularly the construction, and this certainly has an impact. We also had a water crisis, a very serious drought, so this has been a challenging year for the company. Here we have some of the relevant events in 2021, and I'm going to go over them briefly and explain a little bit of them. One of the relevant events that we had was the startup of TCC. It's a project in Governador Valadares and Rio Novo do Sul. This project was anticipated based on the ANEEL schedule, so we -- even with all the difficulties and everything that impacted the construction, we could still anticipate the project by 11 months relative to the initial schedule. And we were able to invest with a RAP-CapEx ratio of 22%, so this was a very well-prepared and well-structured project and very successful despite all the difficulties and all the issues that we had this year. Our RAP in this project is BRL 165 million, and this is for the '21 -- '22 cycle and [ this is always readjusted ] in July. The second relevant events that we had is the startup of La Virgen in Peru. We were able to make some changes to this project. We were able to increase the power, the potency with different measures that we implemented. The 3 machines are already operating. The latest one was started up in July 2021 -- with an installed capacity of 93 megawatts and a physical guarantee -- well, it's not a physical guarantee. We calculate the generation with [ P60 ]. So 58 megawatts of assured energy. So this is the assured energy for this project. This project was also very challenging. It was conducted in Peru; and this is important because the revenue that we have outside Brazil is indexed by strong currency, by the dollar. So all the projects that are operating, starting in 2022, we should have about 10% of our revenue in dollars, starting next year. Here is an important point because in Peru there was a distortion in the spot price market -- in the spot market because the price of the dispatch was defined by the information on the cost of operation. So many plants would inform their operation costs as 0 to be able to be dispatched, but they were receiving for their PPAs. So this generated discussions in Peru and this was judged by the supreme court of Peru. So starting in July, PR-31 came to regulate the situation in a way that now thermal power plants have to inform at least the price of gas and the transportation, so -- as a cost of operation, which is equivalent to our CVU. So the spot: The way to calculate spot price change -- and the minimum value for spot is about $22, $23, more or less. Last -- this year, in 2021, the average was $26 per megawatt hour, and our expectation according to projections is that this value will be $31 a megawatt hour for 2022. The system in Peru is well divided between hydropower and thermal power. You can't operate only with hydro because thermal is about 50% of the capacity, a little less than that. And the thermal power plants will provide the other 50%. Here is another material effect. You remember that we had as partners of the company the FI-FGTS, which joined through a primary investment in 2009. And they held 12% of the company's capital. They finished their investment cycle then they sold many assets, and then in April 2021, they sold the company's shares. There was a public offer and then a secondary follow-on. They sold 35,162,754 units at the price of BRL 25.50. So it was a 3.2% premium in relation to the volume weighted average price of the last 60 days, so the total value was BRL 896.7 million. So what difference does this make? You may be asking yourself, but the main point here is that, based on this sale -- so it was a sale from a concentrated investor, so there is an increase in liquidity that follows. We have seen this increase in liquidity in 2021, reaching very reasonable levels of liquidity for the company. So this is also the FI-FGTS operation. This was done through a mezzanine. This is a mezzanine operation, which means that they held part of the capital of the plants and they had a put and call option. So on the maturation days, we exercised this call and we increased our share of Foz do Rio Claro from [ 50% to 70% ]. And about acquisitions. The market was asking about that very frequently. So of all the assets where we are partners for Perfin, we have a buy option to buy 30% of the shares that are owned by Perfin. And we exercised this option last week. And we bought 14% of TCC, which is the company that was just put into operation. So we went from 51% of total capital to 65.7% of the total capital. And this proportionately -- thinking of a proportional RAP for Alupar, this adds BRL 26.3 million of additional RAP. And in terms of consolidated RAP, it doesn't make a difference, but it does make a difference in terms of results because you have the exclusion of the minority partners. So this does make a difference. Another thing that was very relevant was the renewal -- or the agreement that was finally executed, the GSF agreement for the projects that had energy. In the free market, we adhered to the agreement and most of the companies that were questioning the GSF agreements in the market. Well, in the regulated market, the agreement had already been signed in 2015; however, not in the free market. So CCEE had been for at least 6 years in default with the industry. So this certainly unlocked all these setbacks that we had in the industry and for the short-term market. So we adhered to the agreement and all the projects that we have in the free market. This agreement was based on the extension of the concession agreement. So here we have all the plants. For Foz do Rio Claro, 1,900 days; Queluz and Lavrinhas, 1,467 and 1,468 -- for the other one; for Ijuí, 1,648 days; for Verde 8, 161 days, which is our most recent plants; and Ferreira Gomes, 584 days of extension in the concession contract. So the validity of the concession contract was -- is now 2038, [ 2045 ]. In the end of the year, there will be a second auction, and these are the assets that are being auctioned in this occasion.

Actually, José Luiz here we're going to talk about the implementation phase of the previous auctions. So we talked about the 2016 auction, which was the investment cycle that we had during the period. So we developed 9 transmission assets. So the investment was close to BRL 5 billion, adding an RAP of BRL 1.1 billion to our transmission portfolio. We have about BRL 4 billion in loans. And later on, we will talk about the statistics and control of these operations that are establishing 18 months between the installation license and the completion and energization of the system. So looking forward, we're not, no longer talking about promises. We're talking about achievements. So this is a summary of what we announced to the market in the past. We already implemented 2,200 kilometers of transmission lines. We still have 1,800 kilometers to be completed, but as I said at the beginning, 2 of these systems are already at their final stages of completion. So 4,200 towers, with 3,777 already built; 5,769 properties, of which almost all have already been acquired. We added 6 owned substations to our assets. And this has a certain relevance to it because in the future -- for our shares. So we also added 5,300 MVA to our system. We also had 13 extensions of substations. With these indicators that are listed here on this slide: We manage all these projects as an integrator with approximately 200 direct employees in the management of these projects, managing nearly 11,000 contractors. So all these people were part of the efforts and the completion of the projects. We issued 56 licenses -- actually, 54. We're still waiting for the last 2. Nearly 2,200 kilometers of OPGW cables purchased, nearly 40,000 tons of conductor cables purchased and nearly 70 tons (sic) [ 70,000 tons ] of metallic structures acquired and 620,000 insulator units. We know that these numbers do not have such an impact on the financial market, but for those that work with engineering and project management and management of complex projects, this gives you an idea of how challenging this all was and everything that we have done during these 18 months between the auction and the entry into operation. And practically all this work was developed during the pandemic, so there's an additional level of difficulty there because of COVID. These were the projects that were anticipated; and their respective RAPs for EAP (sic) [ ETAP ], PPE (sic) [ TPE ], PCC (sic) [ TCC ]; and now our perspective for TSM, which we expect to complete and energize. And we are at 99% of the works completed, so we are really at the final stage for energization of this system. And these anticipations resulted in an equivalent RAP of about BRL 600 million. And it's worth noting that these anticipations -- with all the restrictions due to the water crisis, we had 3 projects of the company that had crucial importance for the wind power produced in the Northeast to transport this energy to be used in the Southeast of the country. If not for the fact that we were able to anticipate the TPE project by 11 months and TCC by 7 months, if not for these anticipations, this exchange of power would not have been possible. And we still have [ EDPE ], which will help ensure the management of the water crisis. And both TPE and TCC were from the auction that took place in October 2016. And in that same auction, we had to operate [ within minus 1 ] because this was the only option that we had for this energy. We had [indiscernible] lots for TPE. We had [indiscernible] made up a different transfer channel for this purpose. And these 2 are not yet completed, but I want to highlight the importance of this system, the -- how important it was for the power system for us to anticipate these 2 projects. In the last APIMEC meeting, we showed that in 2018, when we started this investment cycle, we were talking about a 15% discount or reduction in the CapEx compared with the data from ANEEL. And then we changed that to 20%, and we maintained the 20% to date. And this update in the RAP-over-CapEx ratio, here we have the data by project. I won't go into details, but the RAP-over-CapEx ratio, the average ratio was 21% in this investment cycle. And here we already have the 18% reduction in our CapEx, but we maintain our expectation to complete this investment cycle with this average reduction of 20%. Regarding TSM. As I said, we are at 99% completed. And ESTE is also advancing. We are at 97% completed. And TCE, which is the 200-and-something kilometer connection that goes to Pereira in Colombia, we're still at the licensing stage. And we can even talk more about that, if you wish, but the licensing is not for the entire [ spend ] because the total is 450 towers and we still have 15 towers to be licensed. So this is the current status regarding environmental permits and environmental licenses. And as we said before, the mechanism in Colombia allows revenues to be recognized when the delay is due to factors that are not attributable to the concessionary, so we hope that we can also start operating and generating revenue with TCE next year. [Presentation]

We wanted to show this video. First, I need to make a correction because I made a mistake with the period reduction. For TCC, it was 11 months. And for TPE, it was 16 months. I think -- I don't remember what I said exactly, but it's 11 and 16. So I just wanted to correct this piece of information to give you an idea of that I mentioned, not just of the anticipation but also how important these anticipations were for the management of the national power systems. And this video is a short video, but it shows the difficulties inherent to these transmission projects. Sometimes these are projects that have a major environmental impact. These projects sometimes go through urban regions. And this also shows our binding, when managing engineering projects, with the ESG, with the items of the ESG agenda. You'll hear about all the programs that we are implementing associated with environmental licensing or things that we are continuously doing to link everything that we are doing with a proactive agenda to benefit the communities that are involved in these projects. And we will also talk about new opportunities and the new growth cycle and project development cycle that we have ahead of us. So the main one. And this is something that we are already working on for the past 10 years, and it is precisely about the Manaus-Boa Vista connection. And this will be yet another opportunity for us to shed more light on what is happening since, as most of you know, this is a project of [ 120,000 ] kilometers. And the darker part of the map are [ 122 ] kilometers -- right next to the federal highway inside an indigenous reserve. And these [ 102 ] kilometers are the [ span ] that is most problematic in this project. The permit was issued now, this last quarter, the environmental license. And TNE prepared material that provides more information about the project and the conditions that were established in the [ PDA ]; and the [ PDACI ], which is the indigenous component of the project. And this will be available on our investors relations website to inform the market because this is something that -- in the media and in the public opinion. Every infrastructure project or nearly every intervention, urban intervention, industrial intervention but -- or agricultural intervention, they have some impact, right? So what's important is how you mitigate and how you compensate for those impacts. So this communication talks about the discussion between public and private agents and the environmental aspect in this specific case. I don't know if we're going to show some of this material, but it is a communication. Of course, there's a lot of details. We don't have time to go over other details, but I think this is also a good opportunity for everyone to learn more about what's being discussed. So the first point is this discussion. On one hand, you have a transmission line that has a certain impact, but this line will generate a huge benefit in the long term, including in reducing the use of fuels and CO2 emissions. So we -- TNE used official data from the Ministry of Mines and Energy saying that -- and currently -- because this number has been greater in the past with savings of about 500-and-something million per year regarding the use of fossil fuels. So this number has been higher in the past, but the current information is that it is required nearly 1 million liters of diesel per day. And it's estimated that [ 7,510 ] trucks are using BR-101, the highway, every day. And these trucks are powered by diesel. And then TNE made a projection based on this data; and they concluded that the reduction in daily emissions is about [ 204 ], which is equivalent to [ 850,000 ] equivalent CO2 tons per year. So this is something that we hardly ever hear in the media, in the general media. We hear that only from specialists. So also there is the economic issue. The state of Roraima has been suffering immensely with the lack of investments and economic development in the region. And they have blackouts all the time. There was 1 year that there were 46 blackouts in 1 year in that state. So it's very difficult to live in these circumstances. And also there is the environmental issue, which is the main theme that is involved in the controversy about TNE. As approved by IBAMA, TNE committed to BRL 45 million in environmental and -- social and environmental actions during the implementation of the project. And this is plus the [ BRL 3 million ] in environmental compensation. So BRL 45 million during the implementation of the programs linked with the [ PDA ] as approved by IBAMA. So now let's talk about the [ PBACE ], which is the community around the project. This region, the darker region here, has nearly 2.6 million hectares in area and 2,330 indigenous people. So in the construction project, we had many meetings with IBAMA, TNE and the community. And we studied a way to minimize the effects on the indigenous reserve. This communication will be available to all of you, but in addition to going in parallel to the federal highway, it was also determined that we're going to have higher towers more than 100 meter high. And this will decrease the impact of the metal and the cables. There are many items listed here. I'm not going to talk about all of them, but towers have to be premounted outside the indigenous reserve. The cables, whenever possible, will be installed with [ drones ]. Services will always take place during the day. We will have bilingual signage. Meals are going to be prepared outside indigenous lands. Waste is going to be managed outside indigenous lands. And remember we're talking about 2.6 million hectares. The transmission line has 70 meters, so we're talking about 850 hectares. And these 850 hectares will not be affected because the construction system -- and this was even done transparently with the community. So this program is substantially greater, in terms of investment, than our other projects -- or the program for recovery, the most important indigenous community recovery program, [indiscernible], the [indiscernible] program. [indiscernible] comprise 236,000 hectares, and 30,000 were an indigenous reserve, but anyhow, of course then, after the line is built, the maintenance effect will be minimal, annual exchange or annual maintenance. And environmental programs will also be available. We have 24 programs linked with the indigenous community. We have several mitigation programs, compensation programs. And in these programs, TNE committed to investing about BRL 82 million additionally to the other [ 43 million ] that I already mentioned. And this is only for this, everything related with the indigenous community during construction, implementation and operation of the project. And of these BRL 82 million, BRL 18 million will be managed by TNE. And BRL 64 million will be passed on to the [indiscernible] community, and they will manage their programs with this money. And then we have all the communication programs, fiscalization, health, education, power connection, Internet connection, health care units, libraries. So we have many programs. And we have all the details in this document, in addition to everything related with production of [ flower and molasses ] and fish and et cetera. So just to summarize. This is just to give you an idea because this is not just a small compensation plan. It's a robust compensation plan. And of course, the TNE is striving and will continue to strive to manage this project in line with the needs and wishes of the indigenous community, but we need to make it very clear how important this project is and the investments that TNE is set to make to compensate and manage and mitigate any environmental risks. So this is a summary of this communication that will be published. The other project is also very well known. And it's also very important for the energy supply in the coast of the State of São Paulo. And we have been, for years, implementing this project. There was a problem. That was already solved. And there was the issue of environmental licensing and the administration of the aerospace in the region of Santos, but these were all problems that were solved. And today, we have one of the environmental licenses already issued for the installation of the South span, which is a new substation that will be built in the Manoel da Nóbrega substation. So this is consolidated and accounts for an increase in the annual revenue in the transmission area. So with the 2 phenomena with the increase in the RAP and the relative increase in relation with Alupar's participation in these projects. Now looking forward -- and this is also a recurring situation because -- I've been following the quarterly presentations. And whenever we have an auction, we have a recurring question. "What will happen in the coming years?" So there is always an expectation. And that's what the reality is showing, that many companies have been harmed when ensuring an acceptable return rate for the projects they are developing. In the latest cycle, just like all other companies, we had to live with the effects of the pandemic, the water crisis, the lockdowns, problems with contractors, contamination, isolation. And this is all accompanied by a reversion of the previous expectation from previous cycles where we had lower return rates -- or higher return rates with a lower financial expectation cost. So this created an upside at a certain point for those who are in this cycle between high and low, and then you have the cycle between low and high. So the combination of these factors with the increase in the rates and financial costs of the projects and considering all these restrictions and problems -- and recently, we had an [ expressive ] increase in the costs of raw materials all over the world. And this also hit the power industry. So the foreign exchange, international freight costs, shortage of raw materials -- so here we have the indicators. So there was an increase, a relevant increase, in costs and investments. And of course, this will have an impact on those who are at a different completion stage in their projects. We have the possibility and the industry will have the possibility to [ reprice ] all these conditions in the next auctions, so let's see what happens. So we have the first auction this week. It's not so large. It's just 5 lots. The investment, total investment, is about BRL 3 billion, but we are expecting a much more significant auction next year, which is this auction here. So this is an estimation. So more than BRL 10 billion in total investments, more than 5,300 MVAs in capacity and in an extension of 3,600 kilometers. So here we have a map showing the projects that will be allocated in this auction. As you all know, we participate in all transmission auctions since the first one at the time of the Fernando Henrique Cardoso administration, when they opened the possibility for private companies to participate. We have participated in every single auction. And we will continue to do so and with the same seriousness in the management and prioritization of our investments with a return rate that allows for the sustainability of the company in the long term. We do have opportunities, but opportunities must come with responsibility. And we will continue with the same culture in the way we define our investment priorities. And now I hand it over to José Luiz. And he will continue to talk about some topics related with the business expansion of the company.

Thank you. So now about generation, the projects that we are now -- that are now under implementation, under construction. The first one is the Agreste Potiguar wind complex. These are 7 farms with a total capacity of 214 megawatts, with an assured energy of 110 megawatts and a capacity factor of 51% with P90. At P50, this capacity factor reaches nearly 60%. Installed capacity, we are now at phase 1 and we have 7 farms. If you look on the right here, you'll see phase 1 and phase 2. We are building the 2 first farms now, [indiscernible] São João -- Santa Régia and São João. And the 2 farms have earnings -- or capacity of 63 megawatts, with an assured energy of 33 megawatts at P90 or close to 40 megawatts at P50. The works started in September '21. And the due date is January '23, with an estimated CapEx of BRL 445 million. The other 5 projects are -- we are already waiting for the access opinion. So we expect that, by the middle of next year, we will already have ANEEL's approval for the next 5 projects in phase 1. And the other project that is also under implementation. This is a solar farm in Pitombeira. It's a hybrid project. It's a solar project inside a wind farm that we already have in Pitombeira in the State of Ceará in the city of Aracati. And in this project, we are using the connection of our wind farm. And it is a 61-megawatt project with 47 megawatt AC or alternate current. Assured energy is 15 megawatts; and the capacity factor is 31%, and 24% for [ Pik ]. Deployment starts in January 2022 and the due date is December '23. We are using Jinko modules of 540 watt [ Pik ] each. These are other assets that are now under development. We have the Fontainha project in the city of Aracati. So it is like an expansion of the wind farm that we already have in the State of Ceará, the Aracati project, energia dos ventos or wind energy. This project has about [ 90 -- or 100 ] megawatts of installed energy -- installed capacity. So this would be an expansion using the same connections. And we also have the solar farm, 110 megawatts, in Aracati as well, tapping all the structure that we have there for a hybrid farm, wind and solar in the same location. And this brings important synergies in terms of OEM, connection and operation of the system. And we also have another part in the State of Rio Grande Do Norte which is now under development, 240 megawatts and 99 assured energy -- 99 megawatts of assured energy in Pedro Avelino, a city in the State of Rio Grande Do Norte. So these are the projects that we are developing. And we also have a solar project in Jandaira. This is a larger project, 625 megawatts, but this is at earlier stages because it depends -- still depends on the access permit. So we are at more initial stages in this project. So these are the projects in our pipeline for generation. So these are in our [ total ] pipeline, and the previous projects are projects that are already being constructed. So now I'm going to hand it over to Paulo to talk about sustainability.

So considering our goals for 2022, I'm going to talk about 2 of them. One of them is the ESG agenda. And I'm going to talk not only about the E and S. We are also going to talk about G. We're going to talk about governance, the governance that we are building for the company in terms of management, compliance, audit, project management, modernization of our management tools. And the other parts social and environmental that we call sustainability, we have taken some important steps in this direction. As you can see here on the screen, we have some important facts. We had our sustainability report 2021. And this is also related to the general agenda, to compliance, to CO2 emissions or greenhouse gas emissions, according to the procedures that are being adopted by major companies in the world. Here internally we always say that we are not just seeking recognition and awards and stamps. We want to walk the talk. We want to have our foot on the ground. We want to do and show what we are doing and not just our intent to do something. We received the certification which is internally very important about the quality of the workplace. So we have 2 relevant classifications here. And it's the second consecutive year that we are part of this forum of the best companies to work in, and you're going to hear more about this. And this coincided with the APIMEC meeting. And yesterday is when we announced our enrollment to the global UN pact, so starting yesterday, Alupar is now part of the Brazil network with the UN Global Compact. And about our people. We always talk about this important pillar and this has to do with financial responsibility. We are committed to financial discipline, financial responsibility, but we're also committed to our people and to our management systems. So this seal was renewed, the FIA Employee Experience certification. So we have [ Alu. Alu ] is the mascot of the HR area which was developed by our employees. They chose [ Alu ] as our mascot, and she is going to be present in everything that we do related to our people. I don't know if you're all familiar, but we ensured the secrecy and transparency and anonymity of our employee survey, of our climate survey. So the employees' answers are totally protected. And we were very happy to see the results from this survey. 96% would recommend to relatives and friends as an excellent company to work for. 99% say that Alupar's products and services are very important to society. Also, 93% of the people consider that age, race and sexual orientation are treated with the same fairness and respect. 94% say they are proud to tell relatives and friends that they work for Alupar. 94% say the benefits offered meet their needs. And 95% consider Alupar an ethical company. So this is what allows to be in the list of companies that are considered incredible places to work in. So this was something that we wanted to share with you today. We have many programs. We don't even have time to go over all of them, but here are some of our programs related with sports, culture, the elderly, children. These are official programs, and in parallel, we also have other programs that we implement and support. We support different causes in Brazil; and also in other countries where we operate, for example, in Peru, in Colombia. So -- and what makes us proud is that we're able to link -- as you're going to see on the next slide, we're going -- we are able to link the programs that we implement for communities. So the programs that we implemented during the COVID pandemic, they also relied on the participation of our employees, so we encouraged our employees to also take part as volunteers. And for some programs, there was a symbolic donation. And every BRL 1 that our employees donated to the cause, Alupar will donate BRL 2, so for each BRL 1, BRL 2 from Alupar. And this was important because we got a very good level of engagement of our employees not just financially but also in other programs that Alupar implemented, for example, the donation of food products. So we had volunteers delivering these foods to the community. So during this period, we had a lot of integration despite the distancing, the physical distancing, but -- we had a lot of integration between the company's actions and volunteer work of its employees. So we prepared a video. And one of the programs that we implemented is a social program, but it's also related with sports. And we're going to show the video now.

Hello, Alupar team. I am the executive director of our committee -- social committee in Brazil. And I want to take these minutes to share with you the values that sports bring to the personal life of -- lives of everyone and how this is related with Alupar's values. I'm going to go over the project. The institute has a role in Brazil to foster sports, to -- starting with the promotion of practice in Brazil. So putting rackets and balls in the hands of children in Brazil, focusing on public schools, communities and public centers, so that sport is democratized in the country. This is what we want; and also supports those that stand out, that want to have a career in sports, the next Guga, the next Maria Esther Bueno; and also contributing to the tennis ecosystem, supporting gyms and clubs. And we believe that this will change the image of tennis in Brazil. We know that sports teaches values for life, focus, discipline, resilience. And this could completely change the lives of children that are participating in this project. Tennis can be learned in practice. And it also teaches about ethics; respecting others; and also meritocracy, which is for us a fundamental pillar of this project, being able to achieve results based on your effort, on your sacrifice, on your work. This is very important for Brazilian sports, and for tennis, it's even more important. We also try to bring to this project good management, good planning and meritocracy also for the management team, teaching them that we need to work hard in order to reach the best results and that the reward is what we see in our everyday life. And when we seek supporters, we look for companies that have the same values that we do; and also values related with sports, such as respect, ethics, results, planning and meritocracy. This is what inspires and is part of the everyday work in -- at Alupar and our everyday work. That's why I'm so happy to -- and honored to be counting on Alupar for this partnership. And it is with the support of partners like Alupar that we can impact and transform the lives of million -- thousands of youth and children in the country through sport. Thank you.

And we have another example. Actually we have many initiatives. We are going to show you another example of a social action that Alupar has implemented. Can we show the second video, please?

Investing in water and sanitation is one of the urgencies of the current society. Did you know that 1 of every 3 persons has no access to drinkable water? And every year, more than 2 million people die due to water-related diseases. SDW develops water-related technologies that change lives and generate social impacts with investment returns. Of every BRL 1 invested, we return BRL 14 to the society. Together with Alupar, we have a social project to benefit communities around the transmission lines, such as Aqualuz, a technology that treats water using sunlight. This project has benefited more than 172 families, generating more than 4.5 million in social savings during the project. These actions are changing the quality of lives of these families, and we count on Alupar to change the lives of many more.

So now I hand it over to José Luiz. And then I come back in the end for some final remarks.

Okay, so now we're going into the company's financial results. Last quarter, in quarter 3 2021, we presented these financial results, so we're just going to go over a few financial highlights. First, the readjustments that we had in our RAP for the '21, '22 cycle, not just the RAP but also, in generation, for the PPAs. So on average, we have 58% of our contracts readjusted based on the IPCA and 42% based on the IGP-M, which led to a readjustment for the '21, '22 cycle of 20%. In the case of the RAP, specifically with no generation included, we went from 3.390 to -- BRL 2.390 billion to BRL 2.868 billion for the '22 cycle, an increase of BRL 500 million. So here we have the IFRS numbers. Here we have our IFRS balance sheet, the numbers for quarter 3 which you already heard during the quarter 3 presentation. There was an increase in our EBITDA. Our EBITDA reached BRL 3.140 billion year-to-date. And a net revenue of BRL 4.106 billion; and the net margin between 20%, 25% -- or 26% year-to-date in the first 9 months until September 2021, for a total of BRL 896 million of net income. Now here is for regulatory. We had an increase in our EBITDA. One relevant point here is the EBITDA increased by 40%. We went from BRL 1 billion to BRL 1.5 billion, so 46%, an increase of 46%; also a 37% increase in our net revenue; and a 25% -- 26% increase in our net income. And our margin maintained at about 12%, the net margin. So here we show the dividends that have been paid out since the IPO in 2013. So since our IPO, we have been paying every year values per unit, BRL 1.68 in 2020 -- 2013, 2014 and 2015; then in 2016, BRL 0.51; BRL 0.54 in 2017; BRL 0.63 in 2018; BRL 0.69 in 2019; and BRL 0.84 in 2020. So you see that we had a large investment cycle from '16 to '20, so we had to reduce our dividends from BRL 1.68 to BRL 0.51, but we are now increasing every year progressively, starting 2016. Every year, we are seeing an increase in the payout of dividends. Here we see our net debt in the holding. In September, we had a debt of BRL 53 million. We had one single issuance, the seventh issuance. All of the others are already settled. So BRL 663 million, with BRL 610 million in cash, with a net debt of BRL 53 million. And the consolidated debt: We have a net debt of BRL 7.782 billion coming from a gross debt of BRL 9.3 billion and a cash of BRL 1.6 billion. So here is the breakdown by debt profile, composition and total debt composition. Here is the amortization schedule. On the left, we see the cash availability. So in the subsidiaries, we have BRL 1 billion; and BRL 610 million for control -- for the holding. And starting in '22, we have an amortization of BRL 659 million per year, or BRL 700 million per year to round up. In light blue, we see bridge loans that are being extended as we put projects into operation. And we take on new loans, bridge loans; and then we extend. And in green, we have the holding debt and the respective maturation.

[ Now, Luiz ], please. We're close to the end now.

Yes. Just one more thing, yes, because I think that we didn't go over this slide. So finally, here we have our covenant, our financial covenant. We closed the gross debt -- the net debt-over-EBITDA ratio at 2x the EBITDA, or 1.7x net -- the effective tax rate based on, in blue, for IFRS; and in green, for regulatory. So based on the regulatory numbers, we are at about 14% of average tax rate. And the average cost of debt, we closed the first 9 months of '21 at 9.4%. In the first 9 months of the year, we were impacted by the increase in the IPCA index. As you could see, we have about 55% of our debt indexed by the IPCA. And although we have the same effect on the RAP and the PPA contracts that are being readjusted, in the short term, there's only an impact on the total debt balance without -- in the case of the regulatory numbers, without the recognition of the value of this impact on the receivables. So there was an impact of the increase in the IPCA for the current year, and it should be closing the year at about 10%. We expect it to close at about 10-point-something percent, 10.5% maybe. That's what the market has been projecting for the IPCA in 2021. So that's basically it, so now let's continue with this Alupar Day.

Well, José Luiz, I think it's a surprise even for you because this was not in our script. I'm sure this is going to be a surprise because we just received the news about the resolution of the ministry of energy of Colombia granting to PCA (sic) [ TCE ] the recognition of 530 days of delay not imputed -- not imputable to PCE (sic) [ TCE ]. So now the energization date is October 2023. So starting in January, TCE will start recognizing a revenue of about [ $2 million ] per month. This has just been published. It was published yesterday, but we just -- got the news just now. So they just informed us, so you are learning firsthand. And what we were -- expected now has actually happened with this resolution from the ministry of Colombia. So we stop here with the presentation. We would like to thank you all for your interest in knowing more about Alupar and your interest in following our trajectory. We always try to be coherent. We always try to be consistent. Since our IPO in 2013, we really strive to walk the talk; and to really work according to our values in terms of our management, in our investments and the business of the company. So I'd like to thank Lucy from APIMEC. It's been a few years that we work together with APIMEC, and we hope this partnership can last much longer. So Lucy, the floor is yours. And once again, thank you all for attending. And we will stay with you after Lucy's comments.

Now we hand the floor to Mrs. Lucy Sousa, the CEO of APIMEC Brazil, who will deliver to Alupar the 9-year seal.

Hello, good morning, investors, analysts and everyone present. I'd like to congratulate Alupar here, represented by Paulo Godoy and José Luiz Godoy Pereira, for these 9 years. And we offer you the gold seal for these 9 years. So now we are APIMEC Brazil, a group of regional offices. And I'd also like to congratulate the company for your results, for the advances in your projects. And we wish you a very good 2022. Thank you very much.

Thank you, Mrs. Lucy.

We will now start the question-and-answer session. [Operator Instructions] Our first question is from [ Gabriel Dies ]. So let's move on to the second question, from [ Mr. Alsidios Elberto ], an individual investor.

Well, I think I already know the answer, but is Paulo -- are Paulo Godoy and José Luiz Godoy is -- are you brothers?

No, we're not brothers. We are relatives. We're related. We're cousins, but I think that we are sixth-degree cousins or something like that. We are cousins.

Will Alupar take part in the auction the day after tomorrow?

Yes. As I said, Alupar has been taking part in all transmission auctions since the first one in the end of the '90s, in the late '90s. And we will continue to do so. We will take part in the one the day after tomorrow and all of the -- all that come in the future.

Has Alupar increased its -- well, Alupar increased its participation in the Perfin project. And it has the TCE and TSM projects. And Alupar also is entitled to increasing its participation, so do you have any expected date of when you will increase your participation during 2022 maybe?

Yes, that's the idea because actually this -- by auction -- actually, today, the cost is high. So since we were coming from some other operations that we had done in the past, we are recycling this liability and taking on debt at a lower cost based on our schedule. And the call is updated by the IPCA, plus 7.3% per year, so we think we can take on this debt at a lower cost than the call exercise. That's why we -- it makes sense to anticipate this call exercise. And we plan to do it in the next period according to our schedule, our internal schedule. And if you have any questions in the future, we are totally available to answer your questions.

The next question is from [ Alexander Fiber ].

Can you hear me? It's the first time that I attend your Alupar Day, and this time as an investor, and I am very positively impressed with the status of your projects and the investments that you're making. I hope that you can really anticipate these projects and these returns. So this is the theme of my question. How are you managing the shortage in raw materials? This is something that all companies are facing, so I'd like to know how Alupar is managing the impact of this shortage.

Thank you, [ Alexander ]. Well, yes, all companies are facing these difficulties. The construction industry, all industries are being impacted. And all these materials and equipment that we bought, well, from the standpoint of the projects that we have ongoing, of course, that -- for those that we will build in the future, we will still have these effects that need to be recognized. However, this movement and sometimes depending on the circumstances -- because there are many materials that we use that are influenced by commodities prices. And sometimes, it's foreign exchange versus commodities prices. And that, over time, you need to know how this is going to adjust. And we have been managing. Actually, whatever we can import, we are also exploring external suppliers when this is warranted. For example, in Colombia we have good experience in alternative sourcing. So this is how we manage. I think the greatest impact could take place at the stage of procurement, particularly for the larger investments that we have to make, but I believe that, from the standpoint of our risk matrix and considering the increase in price of the materials, I think that things are very well controlled in this sense.

Well, a great part of this investment has already been made in these projects. So raw materials were already bought. And we have been looking for alternatives to try to mitigate as much as possible the impacts of the increase in price of raw materials. For all [ supplies ], particularly for construction -- for the construction industry, there was a significant increase in raw material prices. And we are doing everything we can to mitigate these effects.

The next question is from Carolina Carneiro, Crédit Suisse.

Can you hear me?

Yes, we hear you.

I have 2 questions about your competitive environment. You mentioned several projects in your pipeline, wind, solar. You've been investing in renewable sources for a long time now, but many companies that until 1 or 2 years ago did not invest, they are now accelerating their investments, buying portfolio, so can you please tell us how you see the market of renewable energy in terms of demand and possible prices and also about your participation in the auction? In past auctions, there was very strong competition. A lot of construction companies took part, companies not necessarily from the transmission segment but they wanted to increase their exposure, so can you please share what you are expecting in terms of the aggressiveness and the economic scenario? Do you think this next auction will be a calmer auction, or do you think that we should expect relevant decreases relative to the [ cap prices ]?

Well, it's hard to talk about the auction since it hasn't taken place. I think the market is changing. And many companies have been very aggressive in past auctions, very aggressive. And now they're having problems with execution. We hear of delayed works and some projects that promised a relevant anticipation but they weren't able to anticipate and actually they are lagging behind. There's also economic problems with suppliers; some suppliers that are having financial problems, particularly the line builders. They are abandoning works, abandoning contracts, so if you look project by project, you see that the impact of the -- on the projects of the last 10 auctions has been huge. There was an increase in the costs of raw materials and this all combined with the pandemic, so I think that there is a lot of people going through very hard times. The labor aspect in construction is very complicated right now. We have heard some rumors that there's a large construction company that abandoned all its contracts, and a second one. And there is a large construction company that has a project and is requesting very high rebalancing values. And at some point, this will reflect -- or the auctions will have to be brought to the current economic reality, something that has not yet happened, at least not in the 2 -- the past 2 years or 3 years. We had moments of extreme liquidity not just in Brazil but globally. We reached -- in the past, there was a point where we reached very low interest rates, so the liquidity was very high, but that scenario is now changing. And we believe that these auctions will be bid more carefully. The bids will be more careful and more skeptical and careful compared with our projections and all the auctions in the past 2 or 3 years because the return was not so good. And it was even negative for some companies. We still have 2 projects, 3 transmission projects under execution, the Colombia project. We have the ELTE project in the coast of the State of São Paulo, which starts in the middle of next year; and the TNE we are negotiating now. So the idea is to negotiate with the different authorities; and with the community, the indigenous community affected. So we don't really need to go for negative returns in these auctions. We will be there, but we will look at things very carefully. As I said, in the case of TNE, we have been discussing with all the authorities. It is a priority project for Brazil. So just to give you an idea: The cost of the delay in this project due to the lack of licensing, it has already cost BRL 7 billion from 2015 until today. And if this project has started in 2015, it wouldn't be necessary to have that plant, the Azulão plant which was contracted from Eneva. It has a [ CDU ] of BRL 200 and a fixed revenue of 750 million per year. So over the course of these 15 years, you see that a CVU of 500 would be a normal CVU. Only with a fixed revenue, we are talking of a cost of plus BRL 10 million or BRL 11 million for the industry. So this line has already cost Brazil -- the lack of this line has already cost Brazil. If we add all the BRL 11 million, with the BRL 7 billion that have already been spent, this line has already cost -- nearly BRL 20 billion or BRL 19 billion due to the fact that we don't have the Roraima system interconnected. And this is without considering that the Eneva plant power will not be enough for the growth required by the State of Roraima. They are lagging behind in terms of the supply of power. So without considering all the impacts, we don't even know where this will stop. It's crazy if you think that this is nearly the cost of the entire [indiscernible] program, but this is something that we will have to solve. So we also have these projects in our pipeline that we need to continue developing. And we don't have to bid and destroy the value of the company. We don't need to do that. We will take part in the auction. And if not in the auction, it will happen at some point at a more favorable time less aggressive, more conservative. Any other questions?

Well, actually I think that Carol was in the 9 years of the Alupar Day, but she also asked about the generation pipeline.

Oh, sorry. I thought you were asking about transmission auctions.

No, actually she asked 2 questions.

Well, for generation, all these projects have synergies with the projects that we have already implemented. We are creating a retail seller. The idea is to negotiate mid-term to more short-term contracts with a more attractive price. And this gives us a very interesting implementation condition for the progress of this project.

The next question is from [ João Santos ].

So we're going to read your question now. "What do you expect in terms of payout of dividends considering the entry into operation of most of the projects that were under construction until now? Do you intend to increase your payout like other companies did?"

Yes, and this is something that will happen naturally as we increase our cash generation. We just have to comply with the financial covenants to maintain our rating, but this is something that will take place and is already taking place. We even showed the slide with the year-by-year presentation with the increase in the dividend payout. If we compare with TAESA and [ CTEEP ], for example: Their payout is higher than ours, but our growth rate is much higher than theirs in the same period. So this had an impact on the amount that we had to retain to be able to meet the needs of our investment program. Now with the reduction in our investments, it will be possible to increase the payout of dividends. This is something that will happen naturally. We have no intention to maintain the cash inside the company, only the cash that is required for our activities. And we will distribute as much as possible to our shareholders.

We have no further questions, so this question-and-answer session is now closed. And now I hand it back to the company for its final remarks.

Well, we hope to have covered all of the relevant aspects regarding our previous and future activities. And my last comment is that in 2022 the idea is to focus more on the ESG agenda and more focused on governance. We are now developing tools that we are internally calling agile management tools, updating all the management systems that we currently have to monitor performance, project performance and the daily performance of the company, with also a technological upgrade of all these tools. This is something that we're already doing at TSM, ESTE. And the future project [ ELTE ] is also operating this way now. We have a business intelligence program. It's a BI tool where we can monitor online everything that is happening in terms of implementation. We have tools here. And I thought this is not the subject of today, but we can, for example, show you. By using these tools, we can show you what happened yesterday in terms of our cable distribution, the number of equipment [ in ] substations. So this year, we will dedicate a lot of efforts to using these management tools and measuring the company's performance, the performance of the groups and clusters and of the company as a whole. And this year, we are also expecting to see a lot of advances in our sustainability agenda, diversity. We will have different investments in this area to increase the transparency and provide managers and decision makers in the company with more tools and information so that they can make the best use of these tools for the best possible decision making. We are also seeing an important movement towards the creation of regular committees in the company, so what we are trying to communicate is that we are paying attention. And we will be featuring among the most advanced companies in terms of management, governance and environmental, social and governance points that are involved in our operation. We hope to have more opportunities in the future to be here with you, sharing good news, sharing updates. As you know, our IR team is very well evaluated by all the stakeholders that interact with us. And we plan to be ever more available to help the market understand not just the culture of the company but also the company's goals. So thank you all for your presence today. Happy holidays. Merry Christmas, and a happy new year with renewed expectations for 2022. We always hope the new year is better than the previous year, so we wish you a great 2022. Thank you very much.

The Alupar Day 2021 is now closed. The investors relation department will be available to answer any future questions. Thank you all for attending, and have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]