Engie Brasil Energia S.A. (EGIE3) Earnings Call Transcript & Summary

Good morning, everybody. Ladies and gentlemen, I am Michele Schifino, the Communication Management for Engie Brasil Energia. And it is an honor to be with you for the [ 16] inside Engie, still in the virtual format but with renewed hope that in 2022, we can do this face-to-face. To look a bit on the year 2021, I would like to invite the CEO and CFO, Eduardo Sattamini.

A good day to all of you, and it is wonderful to be here with you. As in every year, we have this opportunity of reinforcing the proximity we have with 250,000 shareholders and potential investors. Our goal is to guarantee that this event will approach highly relevant issues for the sector and for the company in Engie Brasil Energia. As many of you have followed up on us, it is important to remind you that even during the transformation journey in the company that was intensified 5 years ago, we were acknowledged in the market for our financial solidity, sustainable actions and operational experience. But this scenario continues to change very rapidly. Our role is ensure that we are one step ahead in the electrical sector and that we can grow for all stakeholders. For this, we have a controller, the Engie Group, that has its focus of growth in Brazil. This is a foundation that enables us to have great ambitions and always be ready for the future. In 2021, we contributed directly to the global strategy of the group. We were able to expand our renewable generation portfolio. And we have also become an energy transmitter, decarbonizing our assets. We have consolidated our position as a platform of investments in energy. And this diversification of business enables us to maintain balanced results even in very challenging context like the pandemic and the water crisis, making our business less prone to volatility both economic and structural. Now this robustness makes us able to guarantee the availability of our assets. We can comply with our investments and maintain our appetite for growth even in this scenario. I hope to have the chance to go more in-depth in the details of these topics during this meeting today.

Now to make this conversation ever more effective and dynamic, we have divided these topics in blocks. At the end of each block, we will have a very quick debate. And the questions will be based on a perception survey carried out by the IR sector to approach the more relevant and recurrent topics. In the fifth and last block, we will have a round table with the main officers to respond to the doubts that have been sent through the platform. Let us go to the agenda: in the first block, why do we need to continue to speak about ESG, finances and the importance of looking at the whole; second block regulatory environment, water crisis, efficient and resilient operations, commercial partnerships for the long term; third block, implementation of projects, new businesses and the vision of the future; in the fourth block, we will speak about tech; and in the fifth block, the roundtable for questions and answers. Let us, therefore, begin the first block with ESG that has predominated in the market agenda for the last 2 years.

Yes, that's true, Michele. When we speak about ESG, we have to highlight that this is not a novel agenda. It has been a journey in Engie Brasil that was engaged in this since it began operations in Brazil. To preserve the environment and guarantee a positive integration in the communities around us are aspects that represent our credential to operate. And because of wind and solar energy, we are present in highly remote areas that have great social vulnerability. And this makes our role ever more relevant so that they can grow, develop and prosper. That is why this agenda is an inherent part of our business. To speak more about our achievements in the environment and social responsibility. In 2021, we will see the video of Luciana Nabarrete.

[Foreign Language]

And in this context, it is also essential to underscore the role of governance when rendering accounts to society. And when it comes to the confidence of our investors, the transparency and clarity of our facts and data are part of our financial discipline. You will be able to observe this when reading our statements to go more in depth. In this issue, we will see the video of our Marcelo Malta.

[Foreign Language]

We request Malta and Luciana onstage along with Sattamini. It is the time for us to debate those topics more profoundly, ESG and finance, as they relate to our pillars.

Let's go to the most recurring questions for 2021. The first question deals with the social and environmental management of our assets and of our relationship with the communities. What are the areas in which the company is working? In a pandemic scenario, how was Engie's operations affected?

Well, Michele, this is a mix of Pedro Bial and William Bonner, TV hosts, well known in Brazil. Before giving the floor over to Luciana, I'd like to talk a bit about our work as it relates to the pandemic. And I would thank you to all our associates who we're present all the time who made a lot of effort to generate energy, which is key to our operations, as you know. And officially, if I may, thank you to all of our employees for all the efforts that you've put in and are putting in. We are still going to the pandemic. And I turn it over to Luciana to address the question about pandemic actions and ESG issues.

Yes. Well, good morning, everyone. Starting with the preparation for the pandemic, to respond to the challenges posed by the pandemic, and challenge is the buzzword here when we talk about what happened back in March 2020. As everybody in the world, we needed to react quickly. And we had to start operating in a completely remote way of working. This was a major challenge. We had been getting ready for that. On the technology front, we had a digital transformation plan in place for 3 years, and that allowed us to have the necessary tools in place to start operating remotely. But the major challenge was not only in the office. We have an essential activity for society, which is energy generation. Energy generation could not be interrupted. So we had to put a whole set of protocols and procedures in place. Those protocols were created and then updated and made flexible and shaped as we evolve to allow work both at the plant level and at the office level. Just to give you a glimpse, from the start of pandemic until today, we have already conducted over 180,000 COVID tests in our own personnel and third-party people. And we do have very strict protocols to fight the pandemic and ensure the well-being of our employees and third-party contractors and, of course, aiming at maintaining our operations going. Now speaking specifically about our social and environmental initiatives in the communities around our assets, I'd say that the main and important feature of those is the fact that we are very close to those communities with whom we have very close relationships. Our managers are there in the field, [ feeling the pain ] and identifying actions that will effectively change people's quality of life. When we think from the standpoint of the environment, every year, we invest about BRL 30 million in over 20 different programs across all locations where we operate. Some of those programs are, I could highlight a few of them, a program to protect water sprayings. It combines education and environmental preservation. So we have young people from those communities, they are invited to participate in the program, along with our technicians in place. And so along with the community, we do have effective actions in place to preserve water sprayings. In the 10 years we've been doing this, we have addressed over 1,300 sprayings in all the areas where we operate. Another very important program, which was mentioned briefly on the video, is our biodiversity program. This was a study, which was conducted to map out all the biomes in the areas where we operate. So at Engie Brasil, we operate in 5 of the 6 Brazilian biomes. And the mapping out of those areas allowed us to define what actions would be priority to preserve those areas. So on the environmental front. But then when we move to the social front, we also have several different programs in place. We do have a track record -- as Sattamini mentioned, we do have a long track record of social actions. And I would highlight our culture center. We are very proud of this program. It is a project which has been around for over 10 years. Yes, we do have 6 culture [ centers ] and 3 in construction. The community has an active participation. We offer activities for young people when they're not in school. We also tend to the elderly. And those culture centers work as meeting hubs for those people. They are usually implemented in cities with less than 100,000 people. And we've had cases where, with the creation of the culture center, we helped contribute to mitigate crime and violence in the area. So those are very important projects.

Yes, Luciana, we see very high level of engagement on the part of our plant managers. And that makes our social and environmental investments provide very high returns. We can see -- we do have what we call active listening to those stakeholders. So we understand the needs in those areas, and we are able to deliver what is expected of us.

Yes. And that's what sets us apart. We are close to the communities. We are talking about large projects, but we do have smaller programs, sports-oriented program, for example, that do a lot of good. And they are there because we are there, we are close to them.

And we do have a couple of Olympic champions, right, people who are standing out. We do have dance classes, digital inclusion classes and theater drama courses. And some of our former students are now part of international dancing companies. So this is truly transformational. It does provide opportunity for those people to change their reality.

And now with the partnerships for good, this was an old dream we've had for a long time. It was launched just now. And the idea is to expand the scope of those social projects and also expand the benefits, offering clients, partners and stakeholders a chance to participate. We already have 5 partner companies. And for 2022, we intend to expand the initiative even further. Yes, it is to multiply what we do, which is good.

So question number two, talking about governance and transparency. Engie Brasil has accounted BRL 1.4 billion in terms of the [ GFOM ] reimbursement. Malta and Sattamini, can you please address that and explain what that is about? And what's the amount expected for the consortia plants? Is there an expectation of having added amounts?

Well, Malta is the man to talk about numbers, but this is a long struggle we faced in the industry, and that has shown a lot of maturity in terms of regulation in Brazil from the part of the federal agency. This started in 2012. And it's been going on until that law was passed to reimburse those costs which were paid for by the plants that shows how sound investments can be in the Brazilian electrical sector. And of course, it is reassuring for us to continue on that growth journey in Brazil. Malta over to you, if you could please address the financial and accounting aspects of this item.

Well, thank you, Sattamini. Good morning, everyone. As mentioned in the question, we already recognized BRL 1.4 billion in our earnings statements, BRL 1.4 billion, relative to the recovery of those costs which we had incurred in GSF in the past. In 2020, the amount, which was recognized, was relative to the plants that sold energy in the free market. In the third quarter of this year, we recognized that GSF, arising from the effects of the plants which were impacted by the [ GFOM ] from 2012 through 2014. And now we still need to recognize the amount coming from the plants where we have a consortia of companies. Just as a reminder, all the hydrological risk of those power plants, they were incurred by Engie Brasil Energia. So because of that, the right to concession extension also falls under Engie Brasil Energia. ANEEL's regulation required that all partners sign the documents, necessary documents, to provide guarantee and to provide extension for the concession. Those documents were filed by ANEEL in October, a couple of months ago. And we expect those amounts to be recognized in Q4 2021. It is important to mention that we're talking about significant amounts. We have been negotiating a few terms for the agreement with our partner companies. And we expect, as I said, to see those numbers accounted for in Q4.

We have to recognize, Malta, this has been a joint work with other agents and with the government as well. The solution through concession [ extension ] does not generate immediate impacts on the consumer. So that impact will be diluted throughout the years of the concession. So this was a nice solution. It helps us control inflation as well, and it was an innovative solution. We need to acknowledge that and congratulate all the stakeholders in this negotiation. It was a very good idea. And of course, I recognize this change in legislation, which was also very important.

Okay. The last question in our block, as the transmission systems are ramped up, are you planning some change in the report presentation such as earnings statements and earnings calls?

Malta, over to you.

I think it is important to put things in perspective. More recently, we invested mainly in generation and trading of energy. And in the past few years, we identified a change in our strategy, and now we started investing in transmission lines and gas pipeline as well. So that, of course, led us to have other business segments in addition to generation, of course. And of course, that will also led us to present our numbers, our results broken down by segment in our explanatory notes to, of course, make explicit the share coming from all those different businesses. But as we now have become a platform for investment and infrastructure, it is important to analyze the numbers by segment but also to analyze them in a more consolidated base.

Yes, we need to have the view of the whole. That's part of our strategy. We decided to diversify our operations. We moved from a generating company only to an investment platform. That's how we should be seeing now. Of course, there will be segments which will fare better than others. But the resilience will come from the very diversity of the assets. But as we are talking about ESG, I'd like to talk about diversity and the inclusion of people. So Luciana, can you please tell us what we are doing on that front?

Yes. For us, to have our diversity and inclusion planning in place and to be effective along those fronts, our objective is that by 2030, we'll have 50% of women managers. We started by analyzing the breakdown in terms of gender across our employee base. And based on that study, we identified that today we have 75% of our employees are men, 25% of our employees are women. But overall breakdown, of course, has differences when you drill down in different areas, when you go to OEM and implementation and installation areas. We see that, that rate changes. It moves to 83%, 17%, 90%, 10% and so on. We understand that our focus also had to be on attracting and training women for OEM, for example, so that we could change those proportions in a sustainable manner. So along with our partners, we try to identify ways to implement those training courses. As an example, we have an ongoing course, training course, Umburanas, where we have our wind plant installed along with Bahia's CNI, and we are training 45 women technicians in different training courses to work in O&M for wind plants. We also operate to attract, retain and speed up careers for woman with mentorship programs, other training programs and several other activities.

Okay. Luciana, when I took over in 2016, we did not have 1 single woman manager in the company. And of course, we felt the need to have more gender diversity in our management today. We have 9 women managers and officers, but we wanted to increase that number. We want to get to 50-50 sometime. We want to strike a gender balance, if I may. And the way to do that was to start at the base, to start at the technical level, at the engineering level. We are an engineering company and an operation and maintenance company as well. So we needed to attract women to perform those activities as well. It will take some time, of course, but we will get there.

It is a sustainable journey, and we count on the partnership of all of you, men and women, of course.

Thank you, Luciana, Malta and Sattamini for this quick Q&A for the first block. Before we go to a break, I'd like to announce that those who joined us after we had started that everybody in this room has been fully vaccinated and have tested for COVID. That's why we're not wearing masks. We will now have a quick break. We'll be back in 3 minutes for the second block. And you'll have a chance to take a look at our plan, our program for the day, right? 3 minutes, we'll see you back in 3 minutes. [Break]

We're back. And we would now like to speak about 3 very strategic issues for our business context. We're going to speak about regulatory, operational and commercial topics in this block.

And we will begin the conversation speaking about the most serious water crisis in the last 90 years. And this has questioned fundamental issues of the sector, the importance of the transmission sector for a just and balanced distribution in Brazil. The national operator of the system is working on managing the supply and demand on a voluntary basis and the need of evolution of this hydrological issue. More than ever, we have seen how important it is to adequately pay the electric generators not only because of the breadth of the risks that we are exposed to but because these risks can be transformed based on our national [ part ]. Now to go more in depth in this context, we will see the video of Marcos Keller, our Market Regulator Officer.

[Foreign Language]

Well, that's it, Keller. And faced with this very challenging scenario for the electrical sector, aggravated by the continuity of the pandemic, it is fundamental to highlight what sets Engie apart. We were able to maintain high levels of availability of our assets. And to speak about challenges of 2021 in delivering operational efficiency, we will see the video of Jose Laydner, our Operations Officer.

[Foreign Language]

Yes, thank you, Laydner. After guaranteeing the operation of our plants and delivering our product, which is energy, we can now speak about some commercial aspects. In this term, we have also become an ever more attractive company for clients that are interested in buying renewable energy or decarbonizing their operations. The growth of our green product shows this and proves that this is a positive trend not only for the sector but for the industry as a whole. We are innovating in our strategy of new products and, of course, digitizing to be able to leverage our growth and increasing our portfolio in a very sustainable way. To speak more about the deliveries of this year, we will now watch a video by Gabriel Mann, our Commercial Director.

[Foreign Language]

And now once we have presented the topics of block 2, we can speak with Marcos Keller, Jose Laydner and Gabriel Mann along with Sattamini. And it couldn't be different. To begin, which will be the hydrology scenario in 2022? And if there is a risk of rationing in the short and medium term?

Well, Michele, when we speak about hydrology, the strategy of the government was very positive in the last few months. But to speak about hydrology, I would like to ask Marcos Keller to speak about the outlook for 2022.

Good morning, everybody. Well, in 2021, we have had our worst historical year. We had to adopt exceptional measures as well as the operator. And of course, this has impact on the risk of rationing that we previously had. And since the beginning of October, we have had rainfall beginning in a rather consistent way. And this allows us to be in a somewhat more comfortable situation vis-a-vis previous months. Now if this will continue on into 2022, no, but the risk of rationing is lower than what we faced in 2021. Why? We had the rainfalls. We have a better reservoir. We will be entering 2022 in a better position than we expected. But in 2022, we will maintain a more restricted operation of our hydroelectric plants. We are going to control the effluence in the plants which will, of course, aid and abet the reservoir. And we are going to use the hydroelectric systems whenever necessary to preserve our reservoirs until the end of 2022, which means that in 2022, there will be greater flexibility for the operator to maintain the reservoir and push away that risk of having a deficit. And another very intelligent move that was already mentioned by Sattamini was a more flexible system for the transmission. We are able to fully use our transmission system. And this is enabling us to better allocate energy in one or another place. And this will continue to work in 2022 if it becomes necessary, which means that we're entering 2022 with a much lower risk than this year. We're entering the period of rainfalls. We do need to have rain in a very consistent way in the Northeast to fill in the reservoirs, but the outlook is much better than what we had last year.

So the government now does have the necessary tools in place to reassure that we won't have rationing in the short term. We have a lot more thermal generation than we had in the past. We have much more transmission capacity than we had in '21, and we have a much more diversified energy metrics than we had before. So in terms of rationing, I don't see that coming. We could have a risk of higher demand, but I am sure that the government is managing all of that in a more competent manner than in the past.

Well, very well, let's move on to the second question for the panel. What were the main challenges to implement remote operation at the plant level? And what would stand in the way of us reaching 100% of remote operations?

Well, Laydner is our operations specialist. He has been working hard for years for us to be able to automate our operations fully, centralize operations and everything. Laydner, please over to you.

Sattamini, I'll start by saying that out of our 13 hydro plants, 10 are being operated remotely from our operations center. Of our 5 wind projects, all of them are managed from here. And the only solar plant we have is always operated from our operations center that is remotely. Also, it is not our objective to be 100% remote. That's not our goal. Some assets demand local operations. For example, biomass plants cannot be operated remotely. In addition to that, whenever we move to a remote mode, the remote operation needs to add value. There has to be a reason for that to exist. We need to conduct an economic liability survey. The Salto Osório plant, when we analyzed the remote operation possibility, would require a change in the control system. As it was getting close to the end of the concession, that was not economically viable. So it will continue to be managed locally and manually until the end of the concession, at least. After that, we can go back and revisit the [ action ]. And as technology becomes cheaper, that situation might change in the future.

Oh, yes, no doubt. No doubt. It can always happen, no doubt, but as is the snapshot, the current snapshot, says that as for the plants that would be eligible to be operated remotely, hydro, solar and wind. When you go to greenfield projects, they already emerged as remote projects. The main challenge is to transform locally managed operations to remote managed operations.

In that case, in addition to having economic feasibility, we need to address 2 fundamental aspects. Number one, we should not increase operational risk. The level has to be at least very same or better. And number two, we need to improve the very quality of the operations. We address those 2 points by conducting a risk assessment survey. We hire or we outsource that service to an international consultancy company. And then out of that work, a report is generated where we identify, we map out all that is needed to control risks in the operational level. And then, of course, we implement all those actions, and then we establish contingency plans for specific procedures, specific to remote operations, of course. We use state-of-the-art technology to be able to operate and manage and mitigate those risks. We, of course, train our operators to the best of our ability. So we try to address all that very effectively. And we also need to take into account the fact that some job posts are simply eliminated. And so what happens to those people whose jobs no longer exist? So when we have something like that, we have always tried to analyze our retirement plans for operators. And oftentimes, we are able to bring some of them in-house to our operations center. We have more plants, so we need more operators at the operations center. Others are transferred to other local plants. So sometimes they change their career path. Some operators became maintenance people. And there is a small team that has to be working locally. With all of that combined, we have worked on several hydro plants, and our track record shows that we have not increased operational risk in any of those plants. The quality of the operation across all plants improved. That has been proven by our KPIs. And we did it without firing 1 single employee.

So we're able to combine all of that. We combined local, remote and retirement plans. That was very, very good. And of course, that is reassuring for our employees. They feel that we respect their work. Now Laydner, also important to address when we automate, we also digitalize. And with that, we improve the way we capture data relative to operations. And with that, we can have better scheduled maintenance plans, we can better assess performance. We are acting -- operating at a much closer level to the assets.

Yes, you are correct. All the technological advances that came with the digitalization of processes, today, if I have a turbine specialist and they are in Europe in a meeting, he can get on his cell phone or his computer and he can have access to all information he would need to analyze the problem just as if he were here on the field. That, of course, provides a higher level of agility and provides more quality to the end result. Thank you.

Thank you. We have been talking about the need to revisit the physical guarantees at the plant level, hydro plant level. When will we see that review? When will that provide more efficiency to the MRA system?

That's a hot topic, Michele, we've been reading that in the news. For Eletrobras, Keller, please, can you address that?

This will happen very, very soon, 2023, we expect. In 2018, we had the last ordinary review, and that's when it was established that those guarantees have to be reviewed every 5 years. So in 2022, all those assumptions will be analyzed. And it's as important to analyze all that data before we review the MRE. You have to review, of course, the critical period once again. And then what happens -- in relation to the moment we're going through right now, we're going through a transition moment, Sattamini. As we've seen this year, we've had the worst water crisis in 91 years. When we combine 2020 and our database and fiscal guarantee, the model shows us that we are going through a critical period. Very, very -- and why is this important? Because it affects the review of fiscal guarantees. That's the allocating criteria for the distribution of physical guarantees for plants. So we expect that to be taken into account as that review is conducted in 2023, all those amounts will be discussed and will be announced in 2022 as assumptions. But it's fundamental, it's key that the review of the physical guarantee for Eletrobras is also calculated on the basis of the same assumptions. Throughout the capitalization process, the fiscal guarantees were calculated without taking 2020 into account. Now 2020 has been validated. The ONS has already included those numbers in their database when we combine all of those new data. So fiscal guarantees that should be included now are quite below the level of those, which are being discussed now in the capitalization process.

Keller, could you give us some more color? The previous critical period happened when? And when is the next critical period?

That makes a lot of difference when you place the critical period. So several decades ago, 80 years ago or 70 years ago, 1950, 1940. We can talk about since different rainfall patterns to the very use that we make of water today, 80 years later, so the level of rainfall arriving and the use that we have for water today, lots of changes. So that's why it's important to review the critical period. But we've had this sequence of bad years from 2012 onwards and that configured a new critical period.

And as per the local rules, those procedures change significantly. So if you use 1 period or another, you will have a different -- some total of energy to be split across the different agencies.

Yes, and the same goes for the physical guarantees. For Eletrobras, for example, the number which would be much lower. And why do we need to correct that? Because if we don't, how are we going to check that? We're talking about a 30-year contract. And the next reviews will happen throughout the concession period. That would be an unfair situation for all the other agents because again, we're talking about a 30-year period.

Okay. Motivated by this discussion, I'd like to pass on another recurring question about the price offer model. How does that work, the price of our model?

The only one who is able to answer that is Keller. I've been asking myself, how are you going to combine price offer with the optimization of the hydrothermal system where you have to optimize the use of water at the reservoir level?

I'll try to be as brief as possible Michele. But basically, this is a very competitive process in which each generating agent that would provide the operator a fair price volume. I want to dispatch X number watts at the following price. For hydro plants as well, that would replace the cost of opportunity for the water, which is used today. So this new process would allow us to define the opportunity cost that we see vis-a-vis our dispatches that would lead to pricing, of course, but not necessarily to dispatch. That's important to say, Sattamini. The operator will have full control on dispatching the system from their reservoir levels. But the economic impact would be different if each generating agent could challenge -- in a good way, could challenge the ONS dispatch.

The physical dispatch would remain the same, but I would have a virtual inventory of water if I thought this was not -- it was not the right time to dispatch as if I had a graphic account.

Yes. That, of course, brings a lot of responsibility for the generating agents because that's an incentive for us to dispatch in a more economically viable way. And if I use my water now, in the water, the cost of opportunity is higher in the future, I'm going to be losing revenue. So that's a delicate issue. So this should be done independently from the operator. We are now working on an R&D project with the CCE, the electric chamber. And the price offer model goes well with the MRE as is and it also addresses another issue, which is the market power on the part of the agent. So the idea is to have a distributed [indiscernible] agents across all the agents without affecting the physical dispatch on the ONS.

Thank you. And now the fifth question about the reflex is that can be expected on energy prices in the mid to the long run, coming from the foreign exchange devaluation and also an increase in commodity prices.

I'd like to move the floor over to Gabriel. Gabriel is probably already seeing a reflex on prices. We know that commodity prices have gone up. And I would imagine this is already affecting the market right, Gabriel.

Yes, Sattamini, the answer is yes. Prices in the mid to the long run will go up. And that hike in commodity prices -- and also, which was not mentioned, but Michele which also leads to that, which is an increase in the interest rates. All of that combined at the end of the day, push projects up. That includes financing, implementation, construction, all those prices go up. As a consequence, the price for those projects will also increase. We have been feeling that in the market. We've seen that in the projects we are now developing another effect that we see. And when we talk about project development, we're going to be touching upon that as well. But there is also an effect coming from the availability of equipment manufacturers. We see a growth in the number of projects. And as a consequence, there is a consumption level of manufacturers' capacity to produce. And all of that combined leads to an increase in prices, an increase in lead times. So the market has been affected by all of that, no doubt. But we still see a very high level of interest on the part of the consumers and hiring energy in the long run even with the price increase.

There's another element to include, which was the logistics chain disruption. There is a shortage of containers, there's shortage of vessels that will impact costs as well. But in any event, that's a reflex, right? When you see -- when you have a foreign exchange level, you increase the competitiveness of the local industry, if you have inventory and so on. But as new demand for inputs come linked to a new foreign exchange, it will create this natural readjustment of the economy. But Gabriel, we have 2 aspects, the long-term aspect in terms of cost, but we also have the short-term aspect. We always see the spot price effect as Keller said, which come from hydrology, either better or worse. How do those affect prices?

Well, hydrology effects the short run rather than the long run. I think it affects, of course, those that are not contracted as generators. Usually, we are well contracted forward in the short run. That's how we started to be contracted in the long term -- in the short term rather and less contracted in the long term. So that volatility in prices in the short run affects us less from the commercial point of view. Of course, there is an effect around GSF and hydrology and other impacts that might affect our results. From the point of view of consumers, we see that for most consumers that strategy of anticipating contraction to try to evade short-term volatility is there. Of course, it will depend on the strategy of each company. We still see consumers that leave consumption to be contracted in the short run. And then of course, they'll suffer higher impact, which may be positive or negative as of recent has been negative.

Thank you, Gabriel. Good answer. Hydrology affecting in the short run. And there was effect in the coming years, but then structural costs will be affected in the long run. But you did mention GSF and now we still have a few minutes to finish the block. The question for Keller, how are we hedging against GSF? And how has the water prices -- water crisis affected us? And what's the portfolio management strategy that you have?

Well, in the last few years, we did have systematic exacerbation in terms of hydrology. Presently, we're better prepared in the case of critical hydrology. Now the cost of this will be much greater now to be more conservative in hydrological hedging offers us a better cost when we think about short-term contracting. We have a more judicious vision at present. We're not saying that what happened in 2021 will repeat itself going forward. But in 2022 and going forward, we will be more rigorous and much more attentive to our hydrological risk. Now to have protection against the risk, should it occur again and -- I don't know in the short term.

Our strategy does focus in the short term, but we do have to capture opportunities. And if the GSF is not what we expected, if it is somewhat better, we can sell our energy at higher prices. And we will have the correct strategy.

Maintain some energy uncontracted will protect us and avoid the suffering perhaps that we would face in the case of critical hydrological situations.

We thank our experts for this debate in the second block. We will once again have a very short pause of 3 minutes. Look at the agenda for the next floor. [Break]

We are back, and one of the main focuses of our investors is to hear about the growth plans and the future vision of the company.

We're going to go more in-depth into this during this block. It is important to devote some time to understand the complexity of large-scale growth in the last few years. In 5 years, we went from 7 gigawatts to 9 gigawatts of installed capacity, 25% growth for BRL 500 million in new products. We went on to BRL 5 billion to always be at the forefront of energy generation and allow for a portfolio diversification. We have found several challenges along the way. The implementation of new projects -- transmission projects means that we have worked at the sector level, and we want to be the main actors in this change, and we will not accept bad indices in this industry as a reality. And this means that for ENGIE in the eyes of the investor that is seeking quick returns is not competitive. If we gain in scale, on the other hand, we have financial discipline that does not enable us to take on risks with incompatible returns. So this balance between competitiveness and return is a fundamental factor in the decisions we make in the company. For years, we have grown in a profitable, stable and sustainable way. And this is how we will continue to approach this more in-depth. We will see the video of Márcio Daian Neves, our Implementation Director. [Presentation]

However, this growth shows fundamental role that Brazil has in the growth plan for ENGIE globally. Engie Brasil Energia is at the center of this vision of the future and our appetite for growth, albeit strong is highly responsible. We're very attentive to all of the market movements, and we act in accordance with technological trends and the opportunities that arise. To speak to us more about this, I will give the floor to Guilherme Ferrari, the new Business Officer for the company. [Presentation]

Very well. Let us begin our debate speaking about the implementation of new businesses and new projects. Sattamini, at a strategic level, how will the company grow in renewable generation in the short, medium and long run and which are the main challenges?

Michele, the group has the mission of growing considerably in coming years to get to an installed capacity of 50 gigawatts in 2030, and we are part of this strategy. For this, we are acquiring new projects, building new plants. We refer to Santo Agostinho. And I would like to ask Guilherme to speak about our growth plans and the new energy sources in greater detail.

Good morning to all of you. Good morning, Sattamini. Once again, a pleasure to be part of inside Engie. This is an interesting and important topic for the company growth. Brazil continues to be one of the focus for the growth of the company. And in the last few years, we have had a great deal of organic growth in the company. Through acquisition, we have sought out robust growth, and we have a very strong pillar. When it comes to the development of competencies and implementation, our commercial strategy, as Gabriel mentioned, this is fundamental for the company's success. And throughout the operation, we seek excellent performance, and this has already been addressed. When we speak about the company growth, we have a very robust pipeline. This year, we acquired the Assu project, which is at the final stages. We should begin working at the beginning of 2022. And presently, we have 1 gigawatt signed for in terms of exclusivity for the horizon of 2022, 2025, and we will continue to have the fuel subsidy, which is important for the clients. Besides the projects that extend to 2025, we have to think of the long run. In our portfolio, we have a high number of wind projects that will be developed [indiscernible], Campo Largo and Santo Agostinho. These are project extensions, and we also have solar projects that are being developed in the same sites, Campo Largo and Santo Agostinho. And we could benefit from the resolution that was launched by ANEEL for hybrid projects where we have contracts for the use of the system, and we can also benefit the social projects. Also important for our growth, as Sattamini mentioned early on, today, we have an investment platform. So transmission projects take a different role. So next week on the 17th, we have a transmission auction. We'll be participating with 2 lots, lot #1 and lot #4. Those lots are quite important. Lot 1, for example, is adjacent to Gralha Azul, which we are developing right now. We are getting close to full commercial operation of the project. That should be happening in the coming months. That project is very specific. It does have a very -- have very important challenges around geography, geology location. We need to really know the region to implement the project. So our engineering and implementation teams have been working on this project since the beginning of the year. We are quite focused on making that feasible. And lot #4 will be auctioned. It is also an important auction. It is located close to one of our generating assets, so we can benefit from some of those synergies. So in short, 2 very important lots. In the long run, to wrap up, next year, there are more lots to be auctioned off by the government. 15 lots have been announced for next year's auction. And you'll be starting to analyze those lots. And another interesting approach that we have ongoing, it's an HDVC project, which should be going for auction in 2023, and we are also with our eyes on that project.

Okay, Guilherme. Another part of the question that we could also address is how to make that growth unfold in a competitive and profitable way at the same time? How do we prepare for that?

Well, the search for profitability is always there. We need to start by selecting our projects well. We always try to have in our pipeline projects that have excellent capacity factors, excellent natural resources, solar and wind resources as well, and also key to our competitiveness is our -- the competence that we can show during the implementation phase. As of late, all our renewable projects have managed to reduce CapEx and also having been able to anticipate the commercial ramp-up. And of course, that sets us apart in competitive terms. It is important for us to differentiate ourselves on that front. And just to be sure that goes beyond, our commercial strategy that is key for us to be able to set ourselves apart. Instead of having 1, 2 or 3, we have 150, 200 clients. We can access clients that are able to pay energy prices above the market average.

That's what we're looking for, right? We're trying to find smaller clients where we have an additional benefit to offer. And those clients would be willing to capture that benefit in the free market, right, at a higher tariff. The benefits would offset that. And an important aspect that we've seen throughout 2021 and back in 2020, which is the level of credibility of energy suppliers. Engie Brasil Energia delivers on their contracts. We do have an energy portfolio that is oftentimes not the case of other players that come to market. They are new entrants oftentimes, and they do not have the ability to offset delays or problems, financing issues or implementation issues, environmental issues. They -- at the end of the day, they leave their clients hanging out to dry. Not us, we do have the ability, even amidst a difficult situation, we are able to deliver what we promise.

Just to reinforce our ability to leverage financially our projects, we have financing sources, BNP and BNDS, of course, but also we can also issue debentures. And that, again, is a differentiating factor. We do offer attractive rates, and of course, that adds to our competitive edge.

Very well. Let's talk about new business strategy and talk about challenges and implementation, especially because we have projects in remote areas, distance from urban centers. What are those challenges?

Well, challenges about, as you know, to be entrepreneurial in Brazil, it is a herculean effort, as you know.

Good morning, everyone. Good morning, Sattamini. Implementation challenges are, of course, significant. Recently, we started implementing projects in remote areas, and we've been quite successful. Our wind projects are being ramped up now, Campo Largo II. We're now in Phase #3. And this has been happening throughout the years when we got there. It was a very remote, very isolated area. Novo Estado again, 1,800 kilometers of transmission lines cutting across [indiscernible] states, getting across several small cities and remote areas. Well, the first challenge that down is logistics to be able to get to those locations with large piece of equipment and so on. Another main challenge has to do with the qualified labor, and we -- as we move further to more remote places, it's more difficult to attract qualified, competent personnel. So personnel selection is key. We have to make sure people who are working there are competent, skilled and that we are able to implement quality and safety procedures across all our work fronts. And there are many. In transmission projects, we have over 300 work fronts working in parallel. And it is our responsibility to monitor that very closely. But I do believe we've been doing that very successfully. We are poised to participate in new auctions, as Guilherme said, and we are able to implement new projects anywhere in Brazil.

Marcio, there is something very important to address as you trying to connect with the first block when Luciana talked about it. Whenever you go to remote areas, the state is less present, the higher are the local needs of the community. So how do we address that as we implement new projects in areas which are so needy of so many things?

Well, the first phase of any implementation project is to map out all stakeholders. The main communities, the main leaderships in those communities, the role of the state, of the city and those locations. And as you said, what the needs are for those communities are adjacent to our projects. We have this mission of contributing with the development of those communities with our assets. And during the implementation phase, when we map out those communities, it is important to get close to those leaderships. As we map out those needs, we can develop social projects collectively, especially focused on health, education, safety along with the cities. That's one of the legacy projects that we leave behind. Concrete material improvement in the quality of lives of those people, in addition to job generation, revenue generation, of course.

I am very happy to see when I visit those remote locations where we are implementing or have implemented projects. I'm glad to see people say, well, we split our history before ENGIE and after ENGIE, it is a true transformation, and that is also our role.

Very well. That's a source of a lot of pride here, this work along with communities, mapping out priorities so that we can work and consistently with their needs. We believe that all renewable projects that are now being submitted for approval will be developed. How does Engie Brasil see that rate as it refers to bottlenecks in points of connections in the end of subsidies in February 2022?

Well, if all of those projects materialize will have a transmission line going around the globe to be able to provide energy to the world. I'd like Guilherme to address that about this pipeline and the outlook for the implementation of those projects.

As it was said, we could provide energy to the world with all the capacity that's being submitted for approval with ANEEL, the federal agency for electricity. A month ago, we heard that Chile was after a transmission line to export energy to China. So we're going to connect to Chile and then to China. Just the jokes aside, all of that comes from Law 14.120, which was past this year, which anticipates the end of the subsidies for projects that are ramped up after 2022, February 2022 in terms of authorization that led to a race on projects, projects that wanted to maintain that field benefit. To give you an idea, October data -- that's always changing, of course, but October data said that we had over 40 gigs in wind projects, 10 in authorization process. And then we see something that Keller mentioned before in the previous block, there is a symmetry between solar and wind projects. For wind projects, we do need to raise a guarantee and then, of course, intimidate or [ shunt ] investors, they become more cautious because they need to take on delivery conditions, and that, of course, affects them. And as for solar, we have an amount of 200 gigawatts of [ ERO ], and almost 30 gigawatts being authorized. So that's a serious issue that impacts the supply chain. It impacts the ability to transmit energy in the northeastern region of Brazil. So companies that do want to implement those projects, they face difficulties because when they start on a project to access ONS, there is a connection restriction. It is a major challenge. It's, of course, an uncertainty level for demand. As Sattamini said, if all those projects are approved, there's no demand for all of those projects simply said. So those are important aspects to be assessed. The regulatory agency has to be paying attention to that to avoid or to prevent that race because that impact the system negatively.

Guilherme, I also see that as a very positive point. We were joking about exporting energy to the world. But with the green hydrogen technology, we see good perspectives for renewable energy in Brazil. Of course, we're going through an extreme situation now because of the end of that tariff benefits, so starting next year that will no longer be in place. But when we look ahead and we look at renewable energy sources, we see a broadening of that frontier. If we can provide renewable energy to hydrogen projects and ammonia projects where that commodity, if I may, could -- will be able to be sold to Europe or Africa, the U.S., Asia or whatever it is needed. And then we are -- we would be transferring energy. And when we transform that into energy by burning hydrogen or by burning ammonia, it would be, to some extent, allowing for the exportation of that renewable energy. And of course, that also represents opportunities for the generating system in Brazil.

Yes, you are correct. The hydrogen issue in Brazil is important. If that technology comes to be and there are several works around that going on, Brazil will be an export hub for hydrogen in Brazil because green hydrogen requires renewable sources, and Brazil is the great -- the main hub in Brazil for renewable energy. We have over 200 gigs onshore of capacity for wind projects. We still have vast areas for solar projects. So Brazil will certainly be a good -- a main player if the hydrogen technology comes to be, and this will happen. And we hope that ENGIE will be ready to meet that new demand.

Guilherme, in fact, we are a global player. We have that competitive advantage of being -- have a footprint across all continents. And this will, of course, represent an edge for us.

No doubt. This is the company's main edge. We are present in Europe. And Europe will be one of the main consumers of hydrogen. If we tap on our capacity in Europe to sell hydrogen, this will be another competitive edge for us. And of course, across all other areas where we are present.

And Michele, we'll be able to explore that in the following block when we talk about gas pipelines with Gustavo.

Exactly, that's a spoiler for Block #4. We have one final question. We are pressed for time. I'll be touching upon 2 topics for you to address, if you will. Number one, about the anticipation of concession renewal for hydro plants and also about an interest in transmission line auctions? And whether there is an interest in pursuing M&A possibilities?

I'll be talking about concession renewals. There is a conversation going on with the government about the possibility of anticipating renewals. Those conversations are well advanced, but they haven't really materialized. They do bring a benefit for the concession holder, the current concession holder to be able to explore an additional 20 years or having a different concession scheme. That will need to happen through legislation. So it's not a bilateral conversation that needs to be taken to the lower house and then the Senate. But the outlook is interesting for us, hydro operators. And it's also a way for the government to generate more additional revenue to balance their fiscal balance. As for the second question, the M&A portion and transmission line auctions, I'll turn it over to Guilherme.

Well, in terms of M&A, we were successful in acquiring the Novo Estado project. Sterlite was going through some difficulties. So we had a good opportunity to acquire them. But in terms of M&A, something similar to Novo Estado, that is becoming increasingly more difficult. There is a regulatory barrier now starting in 2020. And now only allows the transfer of the asset after the commercial ramp-up. So companies that have implementation difficulties won't be able to transfer the assets or sell the asset. And there's also a situation. We've seen very fierce competition at the auctions with low return rates. And throughout the pandemic, we've seen that volatility around commodities. So project CapEx levels went up. For the past few months, we saw an increase in interest rates and all of that harms return rates. So if they go to market, it will be difficult for them to sell at competitive prices because, again, margins are quite compressed by all those external factors that I mentioned, which unfolded after the transmission auctions.

Speaking about growth in transmission, I can add a new question to Marcio. Today with the construction of our new -- of our transmission systems, we see demand to carry out AOR studies, which is sort of a first step towards future transmission line expansion projects. And that, of course, makes us more interested in potential connections to our lines. So tell us where we stand on the implementation front?

Well said, Sattamini, that's an activity which is relatively new for the company. We have already conducted a complex ER study which will be used for the next auction. As Guilherme just mentioned, the Lot 1 auction. That's a Lot we studied in detail. That was a demand from the energy research company. The idea is to get to know the region better, also check the possibility of anticipating licenses so that we can start implementing earlier. So a series of competitive advantages for us as we go into auctions. So that's an initiative which is already in place. And we intend to conduct more of those studies. We do have an engineering area, which is quite sound and which is able to conduct those studies along with our development area. And it also allows us -- just in closing, allows us to identify potential expansions that we can have in our substations, which also generate future revenue streams even for existing projects.

Therefore, we comply with the request for studies made by ANEEL, and we invest additional resources. When it is our understanding that the expansion will be interesting for us and we go more in depth with resources. Is that what happens?

Yes. This is the example of Gralha Azul, where we have a great deal of synergy. It will be connected to the existing substation in Ponta Grossa. And this survey will enable us to analyze other synergies, making us even more competitive in future auctions.

Thank you. Thank you very much, Marcio, Guilherme and Sattamini for the debate for the third block. We go for a short pause, and we will resume in 3 minutes with the fourth block speaking about tag, the opening of the gas market and investments in this segment. [Presentation]

And this is a topic that is being questioned by investors, the gas market. So make the most to know some more, and don't forget to write up your questions for the fifth and the last block. And this is a very legitimate curiosity. This is a market that is opening up, thanks to a recent evolution in legislation. With this, we hope to have a more solid market with well-defined rules, attracting a greater number of agents and something that will become self-sustainable. With this, I would like to show you the video of Gustavo Labanca, the President of TAG. [Presentation]

Very good, and let us go on to the debate. The first question is about regulatory strides that are still necessary to speed up the development of the gas market. Well, before giving the floor to Gustavo to answer the question, I would like to thank Gustavo, the team and TAG for their excellent results contributing to the results of Engie Brasil Energia. And that is why Gustavo is here with us. He has worked very deftly with the regulator and other class entities to foster an efficient and conscious and economically viable method. Very well, Gustavo, you can now answer the question in terms of the evolution.

Thank you, Sattamini. I'm extremely happy to participate once again in Inside Engie, it's a framework for investors and the company. And it's also important, because of ESG, you're always innovating in terms of the company governance. The question, of course, is very important, very well posed the regulatory challenges we have in the sector. It's also important to mention that the new gas law that is in effect demanded the work of an entire decade, including all of the links of the chain. This means there was a very broad and in-depth analysis, and the law has come here with the proper characteristics to truly guarantee the opening of the market. It refers to necessary infrastructure for the transport of gas, a regime of authorization for the construction of more pipelines, for the transportation, enabling us to expand the mesh, and allowing more autonomy for the regulator which is a very important aspect, of course, to have an autonomous and independent regulator. Now what exists in the market are our expectations for the short run. And we require high capital investments. Majority and the long-term issues will not be resolved in the short term. We had a player that was [ monopolic ], which will continue to be dominant, but we need to have the entry of other agents, and this will take time to be able to speed up this opening at least on the regulatory side. We need a coordination between the A&P, the regulatory agent regulating the transport exploration and the state agents that regulate the distribution of gas. We require a good alignment, coordination enabling us to move ahead. And as we're here at Engie, and speaking about electrical energy generation, for the gas sector, it's also important to have coordination between A&P, ANEEL and other agencies for the generation of electrical energy. This will be an anchor for the development of the gas market. Now to sum all of this, a coordination between the federal agent and the states, and on the other hand, coordination of the gas agent and the agents in the electrical energy sector.

Gustavo, I think you touched upon a very important point that surprises me. You have a long-term vision, how to go from a model of monopoly into a market model.

This, of course, will require time. We have already been educating the market regarding this, telling them they should not expect significant growth in the gas market that this will be a lengthy process. We need to have the regulation to allow for a market opening, but the pace has been much faster than expected. Presently, we're able to make available 20% of the capacity of the pipelines to service the clients that Petrobras is no longer able to service. This brings about a new dynamic and enhances our expectations. Of course, we know that this will take some time. We require adaptations, but you have been doing significant work at TAG with the A&P, the National Oil Agency to accelerate this transformation. Thank you, Sattamini.

I have 2 more questions. Number one, about what's still missing for capacity offer in 2022?

Another very good question, which complements what Sattamini was just saying, we've been working along with all the links in the chain to be able to make sure we can have other agents being able to access the transportation network as of next year so that they can sell or trade their gas. So briefly explaining what used to happen before this year is that Petrobras had its own partners for production and exploration. And Petrobras would buy gas from their partners and then Petrobras would sell that gas in the market. Now those partners need to go to market to be able to trade that gas, and that will generate a competition around the molecule and a consequent drop in prices. You have more people offering the same product that creates competition. We are working along with the regulating agency for common ordinary contracts. And we've done that through our platform for capacity offer. We registered 10 interested agents, interested in accessing our network. And out of those 10, 9 reserved capacity for 2022. So it was a significant amount. It was surprising, something close to 12 million cubic meters, including entry and exit capacities. That's -- of course, that's public information. It can be accessed in our web chart. We have Shell, Equinor and other players, [ PetroReconcavo ], they're all present. So that, of course, provides more dynamism to the market. And what is missing, to your point. So yesterday, we heard the news that we have the [ confis ] adjustment, which was just announced. Producers needed to have that adjustment to be able to receive the gas at the treatment statement of Petrobras. This was announced yesterday. And now we have the phase where we will deliver financial guarantees, and we meet with just a few contracts that reduce flexibility with Petrobras. And also free in the network. We need the molecule -- in short, we need the molecule to be able to meet the needs of those new clients.

And that molecule -- it is actually a CapEx, which will be remunerated at the tariff level.

Exactly, Sattamini. In our pipeline, we have the line back, the gas within the system, and we need that minimum volume to be able to operate. Today, that's all held by Petrobras. As we have new players coming in, we'll need to buy that at a pro rata basis to be able to have that inventory with us, and that becomes an asset under TAG which will be compensated by the regulating agency.

Okay. Very good. Let's move to the third question, which has to do with the same discussion. What are the growth avenues for TAG and if you are taking into consideration the construction of new pipelines?

Gustavo, of course, you will address that. But I would like to say that, as a member of the Board at TAG and as a representative of Engie as an investor into the company, we have been trying to support new initiatives, and we are quite excited with those perspectives. Over to you, Gustavo.

Well, thank you, Sattamini. And also a big thank you to the whole Board of Directors and our shareholders who have been very supportive of us across this journey. And to your point, the answer is yes, we want to expand the network. We want to grow sustainably. And when I say sustainable, it's, of course, with an eye on profitability and also with an eye on health and safety and the environment. We want to do that continuously and in the long run, of course. But it's nice to be able to talk about our view. In our view, which of course is supported by the Board is to play a leading role in this market. And to play a leading role in this market, we need to actively operate so that the opening of the market will actually materialize. We believe in this virtuous cycle for gas where we'll have new supply sources connected to the transportation network, and this will generate more competition in the offering side of the molecule, consequently, a higher demand coming from thermal electric sector, from companies, and this will generate a virtuous cycle. The more users we have, the cheaper the access becomes. And then, of course, makes room for new investments and the construction of new pipelines. On the video I -- we just showed, I mentioned a plan for 1.5 billion between 2021 and 2025. We are now revisiting. We're trying to be more ambitious for that cycle. In any event, out of that amount, we have something reserved for maintenance of the assets, maintenance plans, and so want to get the company ready to carry on with its operations. And we have a portion of that amount dedicated to expansion, to remove bottlenecks we have in the system today, some pipeline sections that might require more compression to transport more gas, and also new expansions per se. Today, we do have a few projects in place. And the main one, looking at the expansion plan, would be the LNG terminal in Sergipe, a 25-kilometer portion, which will be very important, not only for TAG, but for the whole integrated gas system in Brazil, and we are already working on it. It has been approved by the Board. And we have authorization to move on. We have the green light to seek all licenses. And we have some gas delivery points. I'll mention one. [indiscernible] in Bahia, the City Gate for Bahiagas. So we have a team there on site to develop that. We have a project that we'll start to implement early next year, [ Gas 42 ], in the City of Fortaleza and metropolitan area. It's not really an expansion, but we are building an 80-kilometer pipeline section to reduce the risks that we have provided that we are cutting across metropolitan area, there's impact on highways, bridges, so we are investing BRL 250 million in that project, and we're now getting close to the final phases of obtaining the environmental licenses. So the short answer is, yes, we do believe in this market, and we want to play a leading role, as I said, and invest heavily.

I feel the importance of everyone being connected so that we can dilute cost and be more efficient, correct?

Yes. That's probably the most important question so far. As we develop the sector in the recent past, some projects, some sources of gas, which are not connected to the transportation and distribution network. That of course, creates inefficiencies. And it's not a critique to investors, but that might deem the project feasible in the short run. But for the country in the long run, it is important that those sources are all connected. I repeat, an integrated network of pipelines, including transportation and distribution. They are not competing. They are complementary. So transportation connects. The sources generates competition for the molecule, and the distribution front connect to demand, the cheaper is the molecule, the higher the demand will be. And to that point, the Engie Group in Brazil and in France, in Europe -- in France, 32,000 kilometers of gas, and GRF with 200,000 kilometers of gas distribution. So there's a number in the market that for each kilometer pipeline, we're talking about 8 and 10 kilometers for distribution. So that's where you see sort of a footprint where you have a federal highway and the state highways connected. So we need to work in a coordinated, integrated manner for that work. And the more optimized the structure is the better it will be for the country.

Excellent. Thank you, Gustavo. Thank you, Sattamini, for the information you shared in this fourth block. And now we're going to move on to the last break. We'll be back in 3 minutes. That means you have 3 minutes to post your final burning questions that you want to see answered in the last half hour of this meeting. For the roundtable, we'll have Rafael Bósio, our IR Manager, who will be moderating the panel. We'll be back in 3 minutes. [Break]

Hello. Good morning. I am Rafael Bósio, the IR Manager for Engie Brasil. It's wonderful to be here with you, and thank you for your participation and questions, making this a very dynamic event. I will do my utmost to include all of the recurrent questions. Now not all of the questions will be answered. So you can send your questions to our IR team at the site. Your participation in the form that we will send you after Inside Engie is also very important. We would like to get feedback from you. This will, of course, enable us to be able to improve in the future. Lastly, and not less important, the full recording this event will also be made available at the IR site.

Very well. Now we can clarify the main doubts through our executives that are all here together to respond to your questions. We're receiving the questions on a tablet. We have already selected some of them. And the first question refers to the entrepreneurial sustainability index, coming from [ Ms. Almeda]. Engie has not remained in the index in this new round of the B3 index. Is there a program for Pampa Sul? And is this the reason why Engie was not confirmed once again?

Yes. We were also surprised by the fact that we're not in that first round that was announced by the B3. And at that point in time, there was a new point in the sustainably index, which is the carbon development project, the CDP. This data was only made available by the CDP on December 7. So Engie as well as other companies were left without the score that was needed to calculate if they would remain on the index or not. Do not be concerned on December 16. We will be there, and in a very good position. We are a sustainable company, and we will keep ourselves at the top of the companies.

Now to add to this. We have a question on Pampa Sul. And let's speak about decarbonization or abatement. It's important to mention that at the beginning of 2020, we had 5.8 million tonnes of carbon equivalent in terms of greenhouse gas. We have had a reduction of 50% in this amount, and those 5.8 million tonnes is already an asset that is up for sale. And with this, our greenhouse gas inventory will be 50,000 tonnes. And despite all of this, we are in the Sustainability Index since the very beginning. We are one of the 6 companies that have been in the index since it was set forth. We already have the Jorge Lacerda Complex. And it does look upon emissions as an index. We are improving in this realm. We will continue to improve. And it's not a reason not to participate in this index. The problem was a matter of information. The stock market had a very rigorous information plan. We have to issue information on December 1 with the certification of this process, and some companies such as ours will only be announced in the second round that will take place on December 16.

Thank you, Sattamini and Luciana. Next question, approaching the financial area. First, for Sattamini and then for Marcos, perhaps. You mentioned the coming into operation of your transmission assets which is the contribution of these projects for the Engie results in 2022 and 2023.

Malta, how about you answering the question?

Thank you for the question. Our outlook in terms of the beginning of operation of [ Praia Sul ] is still aligned with what we have disseminated for the market at the end of the year. Novo Estado, as mentioned, we have a significant portion of the line, representing 55% of the RAP already coming into operation at the beginning of 2022, and the rest of the line for the end of the first semester. When it comes to the impact on our results, both lines have a RAP at historical values of BRL 570 million. Now if we update this amount, it's BRL 570 million. With all of this in hand, you can calculate how much these 2 assets will be adding to the company results.

Thank you, Malta, Sattamini. Next question from [ Vladimir Pinto ] from Kiron. This goes to [ Keller ] after going through Sattamini. If you don't add 2020 in the insured energy for Eletrobras, what can you do to change this?

I think Keller will respond to this, but I would like to thank the question from our rooter of the Flamingo team. Well, we know how important this project is for the government. We also believe it is possible. We're working with the Ministry of Energy and class entities to review the physical area. Once again, we think it is possible to carry out a supervision. Now if this is not done, there should be another way of mitigating damage. There are more creative ways of doing this, but we will leave this going forward. First of all, we would like to focus on the physical area. What I would like to highlight is that we still did not have the validation of the National Water Agency. What was done was on the last day of November. And I believe the government fully understands that it will have to carry out this alteration to guarantee that it has more updated data, and the recalculation will have to be done with updated data.

And as hydro operators were calmer with this, and the future investors that will be part of the Eletrobras capitalization will have better physical guarantees and the guarantee of returns from this.

Thank you. Keller, Sattamini, A question for the trading area. Two questions from Maria Carolina Carneiro from Credit Suisse. With a greater competition in terms of renewable energy and new players. Is there a structural risk in terms of the free market contracts that have already been signed with higher prices?

I will send this question to Guilherme, who will speak about new entrants and new capacity.

What we observed is that the prices are increasing. When we look at the market, we can no longer find cheap energy as we used to be able to. And perhaps there was a greater appetite for growth at that time than for profitability. And this was a difficult position for companies, companies that had sold energy without an exchange hedge or a hedge for the acquisition of equipment.

Of course, counting upon a drop of prices because of technological improvements. This did not materialize. We see some projects in the market with a difficulty to keep standing. And if the sponsor does not have financial capacity This, of course, will cause frustration in the supply foreseen. Now this price trend that we had observed with a drop in prices has changed significantly, and we see a considerable hike in the medium and long term.

I think you covered most of the main points, and Gabriel had already mentioned the trend for price hikes, basically due to the cost of investment. Because of the pandemic, we are all aware that there has been an increase in commodity prices, and their fundamental for solar and wind projects price increase, in labor as well and risk mitigation on the part of the builders who have undergone significant difficulties in the transmission projects, what we observe are builders facing serious problems because of a set of problems concentrating in a single period, not allowing them to perform. This is happening in renewable projects. And because of this, in the medium and long term, the price trend will be towards an increase as well as an increase in the cost of funding because of the interest rate and all of this will have an impact on the energy tariff. We have felt and observed in the market when we speak to clients this concern with the delivery of projects that were hired by clients and project developers, and this includes competition. And we have some consumers who come to us to hire energy because of the delays in the project, they try to contract that part of the project with the delay. If I have understood [ Maria Carolina's ] question properly that she's trying to clarify is that despite we are having a price increase in renewable energy, will the price be competitive? Will we have consumers that will want to renegotiate this for the long term to hire this renewable energy? I don't consider this is a matter of concern in our contracts, and in the market contracts, in general, we have significant penalties to avoid this, what I would call, opportunistic way of acting. Perhaps the only thing we did not cover in terms of market and prices refers to the self-production schemes that we have observed in the market, and this is a system that cannot maintain itself through time because it eliminates the large consumers from the system, and burdens the smaller consumers. We have seen this happening frequently in the market. We have avoided becoming involved in that type of project. Now if there is no regulatory approach to avoid this, we will have to enter this. We will have to continue to have new plants. But of course, this has a negative impact because the sectoral charges will have to be paid for those who are less important and less able to do so in the system.

Thank you, Sattamini, Gabriel, Guilherme. I will pose a question referring to regulation. What can we expect, and we spoke a great deal about the need of streamlining and evolution of regulation. What can we expect from the regulatory framework? And which are the more relevant issues that should be a priority?

I will begin answering. The sector has been discussing this since 2017 when we began discussing the CP3, where we had a reconciliation of all the agents, the government and now distribution and transmission agents. And this was presented to public consultation. This is the base of the [ PL 1917, ]that is at the House of Representatives. So we have 2 legal instruments that are being discussed, and the new regulatory framework -- or at least the -- will be based on this. Keller, perhaps you could discuss what is part of these legislative tools.

I would like to underscore 3 points that are important. One of them is opening. We have a regulated opening in the last few years, but we have further room for opening. This should happen in the coming years, and it is a very important aspect being addressed by these legislative tools. We also have another important point, the establishment of prices. I think we generally observed that there is a significant problem in terms of setting oil prices. And the third point, due to draft bills, and that will require specific regulation, something that will be -- end up being very costly, and it is valuing generation. We can, in Brazil, absorb the creation of renewable energy. It will allow for greater flexibility in the system and will allow the operator to be in a better situation. But this is not being remunerated, and we should find a way to do this new flexibility. And the ability for a rapid response in terms of renewable energy is something that will have to be improved. Another point that is part of these legal tools and the government is working on. This is the end of subsidies. To find the true price of these sources as we increase competitiveness, subsidies should be discontinued as the subsidy we have for nonconventional renewable sources. I think we have addressed the [ view of ] subsidy through this new transition that we see. We also have a discussion on solar energy. Another issue is production. This has the risk of growing significantly in the future. And this is a subsidy that should be dealt with by the government not to become a barrier problem in the future. We do hope that the government will manifest itself in the coming months.

Thank you. We're going to change gears, and I'll speak with TAG. Looking forward, and it would be interesting to have a forecast of when this would be expected, a question on the opportunity for hydrogen transportation. If this is something that TAG would want to do? And what do they have to do to be prepared for this?

Excellent question, Rafael. A very difficult response to speak about deadlines for this. What I can say is that presently, we are working thinking of the future when we think of decarbonization, the hydrogen will become the fuel for the future. And we have to use the present day infrastructure to be able to grow, become more efficient and transport other gases, not only hydrogen, but biogas, biomethane. It's important for all transportation companies and infrastructure companies. We have significant support from Engie in Europe. This is something that has come to life there. Of course, there are limits in terms of the percentage of hydrogen that could be added to natural gas in the transportation network. It's the famous blend, up to 5%, no problems. Up to 10%, you require additional investment. Above this, the situation is more complex. And depending on the compression and pipelines, of course, what increases here is the operational risk. In terms of deadlines, it's very difficult to mention one. And we have agreements signed by Engie and the government of Bahia, the Sierra government also signing agreements to transport gas to Europe. We have a capacity for renewable fuel that is much greater than the demand in Brazil. And any surplus could be used for electrolysis and be used for hydrogen. It's very difficult to mention a deadline for this, but we are getting ready for this new scenario.

It's very important to have your view, the view from TAG, about that. Moving now towards the financial front, we received a question, too many questions. Hang on a second. Will it be possible for Engie to reconcile robust investments for growth with a significant dividend payout? Is there any chance that Engie will conduct a follow-on to have more equity capital and provide more strength for growth at a leverage level at around 2x as it is the case now?

We still have some room to grow debt. Our covenant sits at around 3.5x net debt over EBITDA. We're now at the level of 2, as it was said by the person who asked the question. We have managed to grow, manage to invest more and still pay out dividends at the 100% level for the past years. We will continue to follow on that strategy until we understand that might be putting the company's capital structure at risk. But then if we have a good opportunity and if we have reached our debt level, then I think that's very important for us, which is to maintain our rating. It could be AAA or it could perhaps reduce the rating at a specific situation, but there is no expectation to have that revenue reduced. But then and only then, if we have a good opportunity or a big M&A chance, we might think about a capital increase.

Yes, a listed company. That's why, so that we can have the flexibility. And of course, there are other advantages. That interaction that we have with shareholders and analysts, of course, that brings information to the company. It brings an external view, and that keeps us on our toes and looking at the future. But I'll turn that over to Malta, who might have something to add to that. If you don't, no problem.

Not much to add, Sattamini. But anyway, just to reinforce our low leverage level. We still have, as you said, room to grow. Just as a reminder, Santo Agostinho, we financed the whole equity for the project. And we expect to continue financing the equity. We have a very sound portfolio. And that balance is positive for a dividend payout policy. Dividend payout is linked to project viability and, of course, M&A potential possibilities. And of course, we also generate cash. And in the long run, we will be paying off debt, and adjusting our debt level. We do not see a need in the mid to the short run. If the need arises, we'll go to market. We want to be -- we want to have the flexibility but no expectations around that today.

Thank you, Malta. Thank you, Sattamini. We have a question from Francisco Navarrete from Bradesco. A good question. We won't have all the answers. I don't think, but it's important to listen to what you have to say about the acceleration of the regulated market migrating to the free market. How could we have a more balanced migration from the regulated market to the free market? Without overburdening the regulated market, we still pay for that security. The bills will take time to pass. Do you think that in the short run -- would you say that in the short run, we could have a scenario where we'd have capacity burden being levied on the free market to mitigate the burden on the regulated market consumers?

That is a difficult question to answer. I'll turn it over to -- for Keller, but the government is already operating on that front. They're already auctioning capacities. And when they do that, they already create a market for ballast vis-a-vis energy. But Keller, you are the expert, try to predict what the future holds for that. There has been an important measure, those capacity auctions that you mentioned. The payment for infrastructure is already there, somehow anticipating that balance vis-a-vis energy issue. And secondly, as we see it, the bills will move forward at the lower house. And then of course, this year, the crisis dominated the agenda. But the impression I have is that the government does have the intention to move those projects, those bills forward. So I don't expect that to take too long. And while we wait, we have ways to circumvent that balance vis-a-vis energy issue. Now in terms of the migration from the regulated environment to the free market, the free environment, this will generate an inventory of contracts that will need to be transferred to the free market. What can you say about that Keller?

As long as we do not have a solution for that, we won't see anything happening. There is a whole context. With the hike in prices in the short term, migration slows down. So that's structural. That could change at any moment. So in all likelihood, there will be a greater difficulty of that migration. Maybe the low-voltage captive consumers will be retained in the regulated market for some more time so that they -- some balance can be maintained.

Yes. Yes, that's possible. That's likely, as you said.

Thank you. We are coming close to the end of our Inside Engie. Those questions which were not answered during the event can be sent to our IR team using our website, engie.com.br/investors. Now I turn the floor back over to Eduardo Sattamini for his final remarks. Sattamini, over to you.

Hello, everyone. I'd like to thank you all, and thank you very much for participating. Albeit virtually, it is very, very important for us to have the chance to convey our ideas, our messages in a very direct straightforward way. That's why we made it a point of gathering all executive officers here with us, including Gustavo from TAG to be here with us. This is an important part of our business. And I'd like to leave a final message. First of all, a big thank you to the organizers of the event. Everything worked really well, well above the expectations. Congratulations to everyone. And also a special thank you to all employees, all our associates for a difficult year, but a year where we once again overcame difficulties, delivered results, and we made things happen. And also wish you all a very healthy and safe year-end. And also share with you an expectation of a great '22. We'll continue to deliver results and doing the best for the company and for our investors. Thank you.