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

Thank you, Guilherme. Now let's contrast the past and the future. In the past, we had the opening of the free energy market, and we had a positive signal for these projects. What we see now is a new wave of opening, but not with the same signs. Now what is about to come?

Now the market opening makes that link with the growth of demand. And by offering the consumer greater freedom to choose the power supplier, we're creating a different dynamic in the market. And initially, of course, it's logical in my vision that there won't be a growth of demand because of the opening. What we will have is a transfer of the demand to the free energy market. And in that case, the consumer can be more competitive and they can invest in their business, and this will lead to a second wave. So there is an important link in the growth of demand and the opening of the market. Now the opening of the market per se and the growth of demand does not necessarily mean we will have a new wave of investments. To have this new wave of investments, we have to have the appropriate economic signal. And I'm going to bring everything to my regulatory area. We have to have regulatory visibility. From the viewpoint of the investor, they need to know where the system requires power, flexibility and capacity. They have to know how these attributes will be remunerated for. We're going in that direction, but there's still a great deal to regulate. Regulation has to offer that comfort for the investor to invest, and we have to allow consumers to migrate with comfort as well. There are consumers who don't know the market. They're going to migrate. They should receive the energy they have contracted and the improvements they would have upon migration. We see regulation evolving, but a great deal is missing still. The market opening, for example, we had a review of the ANEEL regulatory agenda, which points are necessary, points that need to be regulated have been pushed forward to 2029. There's still a great deal to do to bring comfort in investment and consumption, but they still require evolution. It's a leap of sophistication and not of load or charge.

Now to speak about this leap for smaller customers that can migrate and the larger customers that feel that impact of a virtual oversupply that is not in connection with the tariffs of the tariffs during the day, for example. How do you look upon this situation, Keller? Is there a demand? Are they requesting products that will embed this flexibility, the risk and diversification in terms of what we offer in our portfolio?

I think Donato's presentation was truly interesting. We speak about the physical system accompanied by economic and regulatory issues. It has been developing through time, and we now have a rather complex system. We have technology in some regions that have curtailment, the use of batteries, demand in other areas, a mismatch demand when it comes to the moment of generation, a series of characteristics of the new system operation of the new system load associated to price and scarcity as well. And this brings about novel risks. Now these novel risks are now being perceived more clearly. We begin with the larger companies, but this trickles down to the smaller companies as well. They're concerned with issues that did not concern them in the past. A few years ago only, the commercial area would say BRL 2, BRL 3. We would have contracting for several years for a company that had 5 employees with permanent leverage, and we could control the price. Now, large brands nowadays do make a difference, especially Engie and consumers have a better perception that besides the base load, there are other risks they have to be concerned with. And the most obvious is the mismatch of consumption and some upside in some regions and some zones. And we also see a very interesting point some consumers that are more prone to undertaking risk and demanding from us more sophisticated products, products that do entail some risk negotiated between the parties, sometimes in terms of volume or price and risk allocation. I think this is inevitable, and this will happen more and more. And it doesn't happen faster because we have advanced in the organization of our market. We had a more organized market where companies could take risk proportionally to their financial capacity. We're going to bring in more players. We have a healthier environment, greater volumes, more liquidity and as a second wave more sophisticated products, of course, volume per year, per month with more sophisticated products during the day, during the evening periods. So the market has to become more mature for this to happen. And well, they will have subsidies and a new conversation ahead of us.

When ENGIE has that new flexibility, the new prices, the premiums in acquisition, the maintenance of customers. What we perceived when we went to the bid is that competition was not well priced, which, of course, entailed a market risk and led to the insolvency we have observed in the last 2 years. Now what allowed us the red carpet to embark in the regulatory part is curtailment, distributed generation and the need for economic signals. Gabriel, if you could speak about these 3 points. And Guilherme, if you want to speak about the pricing of curtailments in the past and the risk assessment of projects so that we can speak about this in more detail for the investors. It's not a risk of capital allocation. It's also a very strong regulatory agenda that we see in Brasilia.

Well, curtailment showed us in a very pragmatic way that it's not sufficient to expand generation. We move forward very rapidly when it comes to the generation of wind, solar energy and solar distributed generation, a growth highly based on subsidies, as was mentioned. And this brought about the problem of curtailment that we face today. We ended up having a supply surplus located in some regions where there was a restriction of transmission to bring this to the center of consumption. So we began to make cuts, and we have the graph brought by Donato that opened up our eyes in terms of the growth and how this has changed the restriction of transmission to the needs in energy, a growth of demand that is what will perhaps bring about a solution for the issue of curtailment. From the regulatory viewpoint, Michele and all the rest of you, what we are looking for is to compensate or trade off these problems. We have the 15,269, a law or a guideline from last year of how to deal with the curtailment compensation in the past and in the future. We had an evolution in the curtailment of the past. We had the disclosure of a term of commitment that players will have to sign with the ministry, that they accept this compensation between 2023 and November 2025. Now the ONS at present is calculating the amounts to reach the final figures for this so that we can then have a true compensation for the end of 2027 or beginning of 2028. Now future curtailment, there's still an ongoing discussion uncertainty. There are 2 regulations under discussion, the CP45 and the Resolution 1030. The CP45 will refer to an ordainment, an adequate organization of the cuts, the curtailment. And besides wind and solar energy, we would like to include hydropower plants. And there should be an effective compensation to the players for this. And in the Resolution 1030 on the issue mentioned by Donato, we need to have transparency in the criteria made by the operator for these cuts. Everything has to be reproducible. We have to simulate this and project it so that the investor can be certain that they're putting capital in a certain venture that will have an ex capital and will remain standing. This is important. Another relevant point that we're still going to Michele, is that issue of bringing distributed energy to also participate in this account or be part of this problem because this is also posing a problem. It's a significant battle. We have had a certain resolution in terms of the roof, a discussion on the white tariffs that would create a price difference depending on the schedule, this could impact distributed generation. And I think last week, we had another CP33, where there will be a discussion on how distributors can control distributed energy resources, a new front to bring DG to be part of the problem.

Let me jump in because like you mentioned, Michele, curtailment is -- ends up being the great offender in renewables. Because when we decided to make the first investments in '21, '22, our team at the time was already envisioning this curtailment, but it was from a lot of the electric curtailment, the energetic curtailment was not yet met because the GD boom, nobody was expecting that. Subsidies after subsidies as we are seeing in the past 4, 5 years, more than 10 gigas per year of GD penetration, which end up directly impacting centralized generation. But at the same time, like you heard from Sattamini in the opening panel, centralized generation is also to blame because there was the golden race that we mentioned. Everybody wanted to maintain the benefit, the 50%. And all investors were making their decisions individually. There was no discussion. There was no conversation. Everybody knew that a connection problem was coming, but they thought, well, I'm going to install my project first and they will not install. Everybody made the decision to install at the same time. So that's what created all the chaos. So curtailment is an offender. And one of the advantages of Engie is the portfolio. We have hydropower and the generation profile of our wind energy parks are more nocturnal. So we have a little less curtailment. But today, after the blackout, the way the system is being operated is much more conservative. So it's not just energetic. There's also the more conservative ONS management that restricts connection, and there are some assets that at some point can reach 50%, 60% curtailment. So you all in the finance market, you know that no business can survive this size of a curtailment. So, curtailment today is the greatest inhibitor for the definition of future investments. We also have the price signal that we -- Gabriel was talking about. And sometimes, we see other utilities that continue to put energy supply connected with data centers, but there's no use doing that. We have an oversupply of power. So we don't need new investments right now. At some point, we will need them. But right now, we don't need them. So this is a point that we will continue to pay attention to in the coming years.

Now, as for operations, is there anything, Guilherme, that could be done in operations because there's the systemic part that is not controlled by us, but there's also a lot of technology, operational efficiency or operational excellence that Engie is very known for doing this very well.

Yes. But sometimes what we do is not enough because the impact of the curtailment is huge. It's too big on the company's results. So in operations, of course, we have other tools that we use to try to minimize in dispatchment or another -- one asset in relation to the other. But there are some other tools that are also important, which is to increase our availability since we have this high of curtailment, availability is a very important factor to continue to improve our performance. So along the lines of what Sattamini and Donato were saying, machine learning, in the past years, we developed tools in-house to be able to anticipate services, predictive maintenance or even postpone maintenance, which allows us to increase the availability of our assets and improve performance. So this is what we have been doing. As you heard from Sattamini, we are already exporting this technology to other companies in the group. So these are platforms that our group is using, and we have Brazil as a reference. And there are also other tools seeking to improve the performance of our assets. Today, we are making relevant elements -- relevant investments in R&D and the main focus is to improve performance. So we know, especially hydropower plants, they have the benefit of MRE. So everything is shared, but renewables, each kilowatt-hour that we fail to generate is a decrease in our revenue. So with R&D, we're always seeking to improve the cleanliness of solar panels, vegetation suppression. We want to automate it. In wind, we want to better align the paddles with the profile of the wind. So these are actions that allow us to gain 1 or 2 percentage points in generation. However, this is not enough, as I said, in order to offset the effects of the curtailment.

One differentiator is that we have a very strong hydropower base in our portfolio. So the portfolio management, how do you see it? Within the strengths that we have in Engie and how can this be seen and manifesting in the market and the liquidity of the company?

So, let's start with the assets, the power generation assets. I think there's an interesting characteristic, which is diversification, not just technological diversification. Of course, our main technology will continue to be hydropower, but we also have relevant wind and solar generation. And we are diversified, not just in technology, but also geographically. And that gives us some differentiators. So we have a diversification of the portfolio from the standpoint of the assets, which is very interesting in order to bring resilience versus the physical issues of the system, the rainfalls, sunlight, the Northeast, the Southeast, the differences. and not by hazard, but because of our strategy built over many, many years, we also have good diversification from the standpoint of our customer base. So we have a lot of segmentation in the different industries, geographically speaking, also a lot of segmentation. These were choices that we made over time, not just by marketing, but also in terms of pricing. So you mentioned -- and if I'm not mistaken, I said this last year, but we are pricing some of the risks, for example, the hour-based price. So we're doing this since 2020. Most of our competitors didn't use to do this. So at least initially, this increases our competitiveness. But then we start to see some midsized to large-sized companies going bankrupt because they didn't weigh in this sort of risk. There was a mismatch between what they're buying, what they're selling. And in the end of the day, this makes a difference, and it is an unacceptable risk to run. So we also use the portfolio effect from the standpoint of generation and consumption. And this is a strength for Engie. But at the same time, looking at portfolio management, it's not just because we have this optimization in our portfolio that we don't have to look at the multiple books at the different segmentations from the standpoint of generation and customer service to identify micro risks and further optimize looking at the whole picture. So this associated with this very unique characteristics that we have versus the size.

And of course, we have a very competitive differentiator for our company in the market. Now, looking at diversification portfolio, this also has a regulatory dimension to it. As important as diversification, our system because of the different technologies that we operate today and because of the geography and the different generation profiles is much more complex, much more complex to operate and so on. Now if the market design treats all this equally, we have a distorted signal for investments. So we have to link everything portfolio and everything else. It's very important that we adjust as much as possible the regulatory environment in order to have an appropriate economic signal from the market.

Yes, we're going to this topic because this year, we heard a lot about the Super El Nino about the volatility and the risk that comes with it, not just market risks, but also risks for the plants that we operate. So how are we positioned in regards to the El Nino [indiscernible].

Yes, I think I will focus more on the operational part because one week ago, I received an e-mail from Paris asking, are you paying attention? Are you following everything related with El Nino? What do you mean paying attention? This is part of our everyday hydrology in Brazil, we are following it since the first hydropower plants were built. So this is no news to us. We know how to operate in this adversity. And the positive point of strength in Brazil is that we have integrated operations. So the assets in the same cascade work orderly together with ONS with reserve volumes and avoiding excess investments in certain periods. So this is already our modus operandi. We already know how to do this. ONS already knows how to do this. We had an event in ONS, and they used our management data for climate adaptation of one of our plants, they use our data as reference. And why is this? Because we have an operations center that is working directly with the assets and together with ONS, and we are used to doing all this process. And this is not just hydrology management, but there's also the dam confidence levels. We have regular inspections every 4 years. There's also the relationship with all the stakeholders in the region, the city halls, the communities, civil defense. So there is a contingency plan if anything goes out of expected. And this really is really reassuring that we will be able to go through these adversities. And we're talking about hydrology in the South, but we also have our wind and solar assets in the Northeast. And one of the consequences of the El Nino is to have the drier weather in those regions. And then we have the risk of fires, which is very critical in those regions. And this also makes us have to structure ourselves. And these are regions where they have scarce water resources. There's no water. So this is an activity that we have been carrying out with the local cities because in case we have any problems with fires, we have an immediate action plan in order to avoid any risk to our generation assets there.

That preparation work from -- on the side of the companies and how we are preparing to defend our assets is one side of it. And the other side is the industry, right? The industry also has to be prepared for the government, regulators, operators, companies, consumers, we need to be prepared to face this type of adversity. We are seeing more -- the impact on the media, we're hearing a lot in the media about the impact on distribution, particularly here in Sao Paulo. So we really need to have the system as a whole operating in the right way and the assets delivering what they need to deliver. But we also need to discuss some other points. One very relevant point that we see and that we saw, for example, during COVID, because COVID is not the same as El Nino, but it's another extreme event that we had to face. Our regulation needs to discuss what is a liability -- sorry, liability exclusion or not because is everything responsibility of the investor, when they're making investments, they have to prepare for the worst and the investment just becomes too expensive and it's not viable anymore if they are liable for everything. So we are seeing a movement from the regulators in analyzing these situations, and they're being very rigorous. Of course, they need to be rigorous, but they also have to understand the side of the investor. There are some things that you need to be prepared to when investing, that are events that are somehow -- they are extraordinary, but they are possible to predict. And there are other things that you cannot predict. So we still have to go more in depth in that discussion from the regulatory standpoint.

And that causes a lot of commotion in the market, right? That speculation and how this will behave not just on the screen, but also in the contracts and in the bids that we'll have in the future, the final consumer and also the transactions in the trade effort. So what is the downstream and the counterpart vision of all this?

Well, let me update you on the short term for the El Nino. I think the general characteristics you know already, it's rainier in the South and dryer in the north. And I don't know how much this will change humidity rates in the Southeast. But what we're seeing in the short term in the realized numbers of September, we're seeing good rainfall in the South and Southeast. So the short term looks -- well, I don't know if I can call it good or bad, but a lot of rainfall in the short term. Yes. And even Sao Paulo, -- and so up to Sao Paulo, we're going to see high levels of rainfall. But we're still seeing, of course, this is our proprietary view. We are on September 17. So it's 1.5 months from the start of the rainy season. So it's the time of the highest uncertainty about what 2027 will look like. And there's no escape in the short term. And in the short term, I mean, 1 year from now, we're going to have a lot of rain, and this is what will affect our price and systemic operation. And then the summer that will define 2027. And we still have that uncertainty, which will be the following period. We're observing a certain delay in terms of the moisture humidity in the north. We still observe this delay. And in the next month or 1.5 months, we will see if that perception of the delay of the rainy season will materialize. We still look upon this as a risk for 2027, which will be worse than 2026 because of the system. Now this volatility in the market has been ongoing. We have had 2 significant changes in our pricing model in the last 2 years, causing a great deal of stress. The short-term prices had a significant increase. And with the increase of prices, especially for 2026, 2027, a more risky behavior on the part of consumers for those who don't have the know-how to take risk, perhaps they do it without perceiving. And among consumers, we see this problem for extending to 2027. So this is not a very prudent risk management. And we observed certain movements in the contract. This is not very interesting, but we're looking upon this with greater proximity. Now these are periods of volatility where the main product is rainfall. If it rains, we have water in the reservoirs. Now this will help us in the distribution during the day. And -- as Donato showed us, all of this will be part of the pricing, whether we have these problems during the day or nocturnally. And of course, they will lead to greater price volatilities. This is what we see some of the consumers that are still on contract, especially industrially and in the trading table in the wholesale energy sales, well, you're aware of the story since 2024, we had the insolvency of some of the important players in the sector with an increase of volatility. And we see this among the large companies, large banks, large consumers and others. And the smaller consumers no longer have credit to operate in this area. Now, at the end of the day, of course, this is not good for anybody. It would be important to have a thriving market. But the main point here is that most of our audience is from the financial market. And this is how we operate. So what is lacking here is the organization of the market. It's not the only solution. And well, we have to allow the smaller and midsized consumers returning to the game, and they can operate according to their financial capacity and the consistency of results would lead to growth and improvement. There is no economic rationality for this.

Now, we have to provide adequate liquidity, not a superficial liquidity as we have nowadays. This is a priority in our agenda. isn't it?

Yes, we have always advocated for this. We have always pursued this. These events of bankruptcy that we observed have been very difficult. They have not allowed us to move forward in the agenda. We had some actions being implemented directly through the CCEE, the Trading Board. But we need to have a more organized market like the European market. And it has been difficult to get to that. What we have seen are private initiatives, the case of N5X, for example, and others of trying to play that role and the CCEE as well. But regulation truly needs to look upon that need more carefully so that we can have a healthier market and a market with greater liquidity.

That would be the correct economic signal to know where we're growing, of course.

And when we speak about regulation, it's not only ANEEL and CCEE, but also financial regulation to take that liability to entrepreneurs. This is a free economy, but they do have to be responsible for the consequences. We're speaking about movements in the financial market as well.

And to conclude, I truly like the format of the previous panel to have a list of desires that we can leave in this panel. And we have the same management, but a renewed mandate because of the election, which would be your list of priorities that you would like to address from the regulatory viewpoint, stable operations with renewable energy and the market vision, not only downstream, but with the counterparts as well.

It's very simple for me, a market design that will properly recognize the attributes of each source to bring about the right investment. This is the main point in my opinion.

And along the lines of what Gabriel said, but that was not mentioned here, the relevance of hydropower plants in our sector as well as in the portfolio of Engie Brasil Energia. It's an agenda to bring about the anticipation of concessions. I think this is a priority agenda for our company. The hydropower plants have that role of being the large battery for the system. And a point that I did not remark on and that was mentioned by Sattamini and Donato. When we're speaking about curtailment, there is a direct impact on the renewable energies, but hydropower plants reduce their generation during the day. And after 5 o'clock, they have to ramp up to cover the peak demand periods. And in the future, this will bring an additional wear to the entire Brazilian electrical system. It's very difficult to disconnect enormous machines. I think this is not part of the radar of many people. And the management, the impact of curtailment in hydropower plants is a factor we should continue to look upon to be able to address. And finally, we spoke about the batteries very briefly. As a company that would like to work in this field, we have projects. We're looking at this, but always with the concern. I think Donato gave us a number figure that is important. Ignorance in a situation like this one could be a gift. If they think it's just a container that you install. If you don't price all the risks, well, they will end up making money, but will face problems in the future. So we want the rules to be very clear. We want the priorities to be guaranteed the technical capacity to ensure that we won't have unpleasant surprises as we had in the past. In the former auctions, we saw several groups in Brazil accompanying the transmission auction, but not truly following through. So we have to carefully look at the process of an auction so that those that are awarded can truly continue to work.

Well, I'll tell you the how and the consequences and everything begins with adequate economic signals, prices, credible prices. There are several markets. We have to have credible prices to give transparency to economic decisions, those who generate, those who consume, those who work in trading and so on and so forth. This is a desire with a reasonable and associated market liquidity. I think this would be an exit from the risks to look at the price and when you want to carry out the operation, there's so much uncertainty. There are several measures to do this but this would lead to an organized market, generating blocks, bringing about better operation, generating market operators as a consequence, an increase in volume and after the volume, more sophisticated products. And as Sattamini said, a fair allocation of investments and for the society, for the consumer clarity on the end cost of power of energy without discounts and without surprises, the cost of production, generation and dispatch.

Very, very good. We had 70 cards to follow. We ended on time.

We would now like to go on to the Q&A session. I'm going to begin with a question myself because all of these executives will be going to the table subsequently. So Felipe, you have a question, I believe.

I would like you to approach two topics. And of course, it doesn't matter how you answer these questions. A bit of that message that you brought us that we should have more adequate economic signals. The Ministry of Mines and Energy recently spoke about the definition of minimums and maximums if this would come as a decree or a normative solution. And perhaps you could comment on the vision of Engie, why you defend these alternatives? And the second point I would like you to discuss is the allocation of payments for the batteries. Recently, ANEEL published this, and there's a proposal for the allocation of this cost among all of the sources. So which is your vision regarding this topic? Have you already analyzed how the company portfolio could be impacted by this going forward? These are my two questions.

I can begin. I'll begin with the last question, which is our vision regarding the LRCap for batteries. Now, to define who is going to pay, we have to look at the function of an auction. And for us, the goal of the auction is to bring about capacity that will be flexible enough to service the consumption end. And to service the consumption end, we should have consumers here. Unfortunately, when legislating and when defining this LP cap, the cost was turned over to the generators. And nowadays, we're faced with this discussion in the sector. It's in the media, so I can speak about this. And they have raised the hypothesis that perhaps the auction will be delayed or will be suspended, which would be very, very bad for the market. We have just spoken that we have several projects to offer at the auction. And we're left with this lack of definition. Now this is our vision. But we are concerned with this imbroglio in terms of the regulation of this auction. Now what is fair is what has been put under consultation that a source like a hydropower plant that at the end of the day, of course, is supplying a specific service of the battery for the system is also paying -- they're paying for all types of technology. If it is the generator, there should be some rationality in the criteria. How much will the generator pay? And our reading of this law, not when we look at that paragraph in isolation when we look at the law as a whole is that those who should pay are the new generators because it's linked to that issue that the new generators that did not provide services that will still be regulated for the control and flexibility of the system, but they should pay for the capacity reserve for the battery. Now this capacity reserve refers to the law, at least this is our reading. We have held that discussion at ANEEL explaining our interpretation. But presently, we're faced with that lack of definition, which is a reason of concern about the auction. And the PLD, what do I see here? It was regulatory. Now it is in the commercial. Perhaps you can help me here. Donato showed us a graph of the PLD and the real cost. Now if we advocate for signals of the adequate price, the price should be that of the gray curve, not the orange curve shown by Donato. And this brings about greater price volatility with the right signal, and we would be able to make batteries, for example, without having to hold an auction to contract more capacity. There would be room to have more batteries in the system. So this is our reading we do need to go in that direction and the PLD has to reflect that adequate price signal. I don't know if this has responded to your question or if you would like to add something.

No, it's precisely what you said. We have to go back to respecting the first law of economics, right, supply and demand. Maybe we can have the price not by model, but bid.

As of the -- yes. And what I said about going up or down, I think that down is we just have to be careful with -- because the minimum PLD system has some very specific characteristics. For example, today, we have the hydro power plants, and they have regulatory requirements, for example, of paying the CFURH. So, you have a minimum negative and the company still has to pay a contribution for the use of water resources. So we have to be careful when looking at the minimum PLD in order to take into account all these specificities of the Brazilian market.

We cannot import solutions for problems we don't have. And we must remember that our base is hydropower. So we need to be consistent. So we have 0 seconds left. So no negative points for the organization of this panel. Thank you all for your attention for the last hour. Thanks, Felipe, for your question. Leonardo, thank you for the opportunity on behalf of the 3 big names that are here with me.

Thank you, Michele. Thank you, Guilherme Ferrari, Marcos Keller, Gabriel very important takeaways from this generation panel showing that the growth of this industry doesn't require just new sources, but also the infrastructure capable of supporting the growth in generation, the growth in the load, which has everything to do with the next panel. And after the panel, we will serve coffee. So let's continue with our panels today. For this next conversation on opportunities in transmission and gas infrastructure, I'd like to call Dr. Tomaz Guadagnin, the CEO of TAG, Tomaz Guadagnin; also Gustavo Labanca, Transmission Director of Engie Brasil. And as a mediator, our Sustainability Director, Thais Soares. I'd like to thank Thais for her presence. And before this session, I want to show you a short video about our partnership for the good. [Presentation]

And Thais, there are no actors and no images from image Bank. These are all people that were truly helped by our programs.

Hello. Thank you, [indiscernible] and Thank you [indiscernible]. Good afternoon, everyone. It's a pleasure to be here as the moderator of this panel. And my first thought with this video is that whenever we talk about power infrastructure, we're also talking about people. And behind each investment, we have communities, we have geographies, we have stories that are part of this journey. And talking about an industry that is so essential for the country is also a reason for pride to all of us, Tomaz, Gustavo, who are leading this agenda. Transmission -- power transmission, gas transportation are essential activities for the country. They are long-term businesses that require investments, and investment decision-making with a view into the future and also the capacity to adapt to an ever-changing environment. And although these activities are relatively recent or more recent in ENGIE Brasil's trajectory, we already have a major presence in these 2 segments, either through TAG which holds the most extensive gas transportation network in the country and also a very relevant portfolio of power transmission assets. So we're here today with Gustavo and Tomaz, and we're going to talk for the next 40 minutes. We're going to go over the growth opportunities, the challenges that walk with us in this trajectory, but also about the capacity in certain sectors where Brazil still has a lot of opportunity, and this growth will require more and more criteria choices, disciplined capital allocation and the capacity to execute these projects. So Tomaz, Gustavo, I'd like to start by trying to understand how you see these opportunities for developments in each of these sectors. Let's start with Tomaz.

Thank you, Thais. Good afternoon, everyone. I'd like to thank ENGIE and Sattamini for the opportunity to be here talking about TAG and the gas sector. And TAG is a joint venture between ENGIE and La Caisse, which was formerly CDPQ in equal proportions in a format of 50%, 50%. TAG operates in 10 states in Brazil, part of the Southeast, the Northeast and also the state of Amazonas. We connect with the NTS grid in the northern part of Rio de Janeiro at the TECAB point. And it's the most expensive network in Brazil, 3,600 kilometers, 4,600 kilometers approximately in total, 3.8 in the coast and another 800 kilometers in the state of Amazonas, connecting Urucu, which is a gas exploration well in the Amazon in the state of Amazonas, supplying gas to the city of Manaus with a very relevant goal in the north of the country in decarbonization and supply of gas for thermal power generation. This is a strategic infrastructure for the country, which seeks to connect more efficiently and more securely the sources of gas to the points of demand to the consumers, the local distribution gas company -- gas distribution companies and also in [ us ], industrial customers and also thermal power plants, which today have a very important role in the power sector, working together with other technologies to help fight intermittence. The development outlook for our sector for gas, Thais. Let's briefly go over what's happening in exploration. And in this sense, I would like to stress that it's not enough to have gas projects without having the appropriate infrastructure that will bring this gas through the distribution networks, processing networks and transportation to its final destination. And recently -- we heard some announcements from at least 2 investors -- 2 very relevant investments. One of them is Raia operated by Equinor, Repsol and Petrobras, with a potential supply of 16 million cubic meters of gas already in 2028, but also the project Sergipe Aguas Profundas, the project by Petrobras with a potential of 18 million cubic meters per day in 2031. If we sum the 2 projects, where it's about 30 to 35 cubic -- million cubic meters per day. And this accounts for 60% of the gas consumption in the whole country. So exploration is growing. There's a lot of potential and studies of the plan for energy expansion estimate that this can grow even more until 2035. There's a huge potential to increase gas supply. And that would have reflections on the gas transportation mesh, which has the role of connecting sources to consumers. TAG, more in the short term, what we see as short-term opportunities for development are developments relative to the RLCAP -- the LRCAP, the thermal gas plant, some of these investments will kick off in 2028 for new plants, and that reflects in 6 outlet points in our grid in the Northeast network and also a piping span of 30 kilometers. These are major investments showing the role that gas has with the power industry with these very secure investments. These combined investments account for about BRL 1.7 billion, BRL 1.8 billion. And we're working on development of these projects together with the other players, aiming to maximize efficiency. We understand that these are long-term infrastructure projects. And we're also very proud to promote the role of gas in the power system, in the power industry that -- this will increase security, which is something that is needed.

Well, you just [indiscernible] the importance of infrastructure as a connector for these opportunities for growth to connect those -- these opportunities for growth with the needs of the system. Now Gustavo, let's talk about transmission. We know that ENGIE has some major projects under development right now. Sattamini talked about them in the last auction. We were the winners with the Colibri project. So I want you to go over how do you see the evolution of the portfolio at ENGIE and also the prospect for the next auction cycles?

Good afternoon. We have a challenge here to be the last to speak before coffee break, right? We are very happy to be here. Thank you for inviting me. And I want to go back to the history. Satta mentioned this, but in 2015, that's when we decided to diversify our portfolio and start working in infrastructure. In 2017, we won our first transmission auction. In 2019, TAG -- we bought TAG. So it's great to be here talking about this trajectory. Now as for transmission, yes, we do have a very robust investment plan between 2018 and 2025, we invested about BRL 8 billion, and we already have an very committed plan with new projects in the last auction of about BRL 6 billion until 2029. It's a great challenge. We have major projects under implementation. But if we think that in 2015, when we decided for the first time in 2017, when we won the first auction, we had nothing. Today, we have thousands of kilometers, 3,200 kilometers of transmission lines operating, and we're going to have much more when the projects are completed. So we have 3 large projects of line construction, the Asa Branca project connecting the south of Bahia. It's good to show the map. The South of Bahia with the northern part of Espirito Santo bringing renewable energy from the Northeast to the Southeast, which is very important. We have the Grauna project in Parana, Santa Catarina in the south of the country, strengthening the power grid in the country, 800 kilometers. And in the last auction, instead of one, it's 2 projects that we were awarded. One in the South, very close to where the Grauna project is about 150 kilometers and in the Northeast, the compensator site. So our challenge is to move these projects forward and putting them into operation -- we have the project review stages, engineering, the environmental cycle [ the Grauna ], the Asa Branca project, for example, we just got the permit, the license in April. The span in Bahia was already completed last year. The Grauna project, we have delegation to the state. In Minas Gerais, we already have the installation license in Santa Catarina and Parana. We have some specific permits for the works -- construction works and the substation, but we're still awaiting the definitive installation license for the line. So it's under cross -- ongoing right now and the more recent auctions, we are hiring now. We're contracting the suppliers, the vendors to ensure the contracts so that we can advance in those projects. I really like numbers. So just to give you an idea, today, we have a RAP maximum permitted revenue of transmission of about BRL 900 million in operation. And when we complete these projects that we have today under work, we're going to reach BRL 1.6 billion, which is a very relevant number, very significant for the growth of ENGIE in Brazil.

And what about the next auctions?

Well, one auction is never identical to the other. We always have lessons learned from every auction. When we lose, we have this feeling that we'll never be competitive enough to win. And then when we win, we are very happy. So it's case by case. We have an auction now on October 30, more than BRL 8 billion in CapEx. We are working on our -- we already worked on our preselection of the projects that we are studying and more quite seriously to be able to submit. And also, there's an open consultation for the auction of April 30 next year with another BRL 12 billion in CapEx. And there's the challenge of that we already have to start this preselection for the April auction and put our team in the field to study the project in order to win, we need a very advanced pre-study of the project before the auction. This is essential.

Sounds great. And we know that the growth and development agendas always accompanied with major challenges. And we also know that success in business like those depend on our ability to navigate in this ever-transforming environment where we have regulatory changes, we have higher and higher levels of demand from the society. We have technological innovation, more and more complex challenges in terms of implementation and operation. So I want to explore one of these topics. I think we could be here for hours talking about challenges, but pick one of these topics that you think is very relevant for your segment. So Tomaz, I think the topic that is central, both for TAG and also for the industry as a whole is the tax review. So if you can share with us where we are at right now in terms of the tax review, what are the next steps? What are the expectations of TAG for this process? That would be really good.

Well, first, the tax review process started last year and is still ongoing. This was something that was already expected. For TAG, it is taking place due to the completion of the legacy contract for the Northeast network that in December 2025 accounted for about 23% of the company's revenue. So first of all, this is a process that the industry was aware of. It started in 2025, and it's not yet completed. The ANP has adopted an approach in stages -- multistage process. The first one was the definition of the regulatory WACC, which is now completed. The second stage is the calculation and definition of valuation of the regulatory base for the assets relative to the contract. [ Alias Nordeste ] -- Northeast, which expired last year. And the next stage is definition of the maximum permitted revenue and the tariffs associated with the transportation service. TAG is following all the regulatory requirements since the start of last year. Our proposal was evaluated by ANP and it's within expected for -- we acted with a lot of transparency in dialogue during all the public consultation processes and everything pertinent to this stage. And based on transparency, technical criteria and regulatory practices, the shareholders of TAG, well, they have broad experience in the sector from other countries in Europe and North America. So we feel highly equipped and secure about our approach in terms of these regulatory stages. What we expect is that this process will be concluded as soon as possible. However, following all of these parameters, requirements, seeking the parameters for the business. As I mentioned, the tariff will be approached in the third phase of the tariff review. And it's important to mention that the cost of gas transportation in Brazil at present represents approximately 10% of the final price for the consumer. We have some variations according to the state in the country. But in broader figures, the price of molecule, 50% to 52%, taxes representing 22% to 25% depending on the region and 15% to 18% and transportation is 10%, representing the lowest contribution in this final cost. Now with the market opening and TAG is very proud of having initiated this some years ago, it was a pioneer. And it has a very important role of bringing in demand, new carriers and stimulating competition and increasing the volume of gas transported every week. This would, of course, generate an effect in the tariffs that users are pursuing. Now this is where we are at. We're in stage 2. The process continues, and we hope to conclude it in the very best way possible with balance for all of the parties involved.

So we see that the regulatory issue is always a relevant one for several segments that was mentioned in the previous panel. Now going back to Gustavo -- and to refer to what you said, we'll speak about competition. We see that the auctions have become ever more competitive at present. And it would be important to also understand which are the practices, which are the differentials that allow ENGIE to remain disciplined, but yet competitive in these auctions.

A very important topic. How many simulations have we carried out to truly discover EBITDA? Yes, competition is extremely rough there. And it shows the regulatory stability of the sector and the planning that has been carried out twice a year, something that is very organized with limited entry barriers. We have new entrants. We have a large number of players participating, which, of course, enhances our challenge. The first thing I would like to mention is that we don't want to win an auction. We want to be awarded good projects. We do have financial stability, a team with technical knowledge, and we want to achieve the projects for which we will have a promised return and a good project at the end. And for this, of course, we need to be highly selective in our choice of lots. We survey a great deal pre-auction. We have areas for each lot to study the geological area, environmental issues, if they are part of an indigenous community, a conservation community. And, of course, we take into account everything, and we have previous experience that sometimes you have to derail your route, you have to take owners out of their property, which will lengthen the duration of the project. So it's very -- a careful work in the planning for the auction. We were awarded in the last auction. We were so happy to have this home run, of course. And the strategy was completely different from the -- for the 2 lots that we ended up being awarded. And I'll show you what made the difference. The lot in the South has 80% in line with an existing line that we already have. We could share the implementation cost of the Grauna project with this new project. We have already done this through the same project manager, simply optimizing costs. And the project is connected to one of our ongoing frustration. So we took into account several synergies. We created a mini hub in the region, increasing our competitiveness in the case of the compensators in the Northeast, we are not present in transmission there, but we do have the ENGIE expertise. We have TAG and ENGIE, both with solar and wind projects in the state of Ceara and in Rio do Norte. People with knowledge about the region, and we speak with the suppliers. So it's a moment of a huge geopolitical crisis in the world, and we have a diversity of suppliers, which is very important, whether they are local, international from Europe or from China. We need to qualify them, create partnerships with them. And in this [ last ] auction, we created a partnership with WEG before the auction, and this was fundamental to increase our competitiveness. I spoke to [ Rosaline ], who is responsible for the electrical segment. We invited her to see what was happening there. And -- it's not a recipe, a simple recipe. You have to know deeply the projects that you're working with. You have to have stringent discipline. You have to have technical knowledge, not only in engineering and operations, financial structuring, a financial -- financial situation. So each detail, each cent is important. I'm extremely satisfied with how the team worked. And I know that for the next auction, we're going to have to overcome this achievement. Although we were extremely well organized, we have to be creative and bring in projects that will bring a greater return to the company in the world.

So we have spoken here about growth and challenges, but everybody is aware that the results of infrastructure businesses depend on the day-to-day operations, operational excellence. And we know that TAG is acknowledged for the high availability and reliability of its network. Tomaz, tell us what it is that you do, which are your priorities to maintain this high standard of security and operational efficiency of the TAG network?

For TAG, the safety of people and operational security are of value. And I think everything begins there. We also work with the teams. We have a highly qualified group of people, experienced and seasoned professionals that will deliver results in industrial safety and human safety because we're operating in a critical structure. It goes through 200 states, several communities that are very sensitive. So industrial security is of the prime importance and everything depends on the day-to-day of our operations and decisions as well. This goes beyond being a priority at TAG. We call this a value and values cannot be changed in terms of initiatives, physical or material, the TAG network is long and not uniform. There are pipelines that are older, newer pipelines, they require specific attention and special treatment. And throughout the years, besides the monitoring programs and integrity of assets, we have also carried out investments in the network, be they in the form of upgrades to offset the obsolescence of equipment that becomes very old upgrades, streamlining to be able to maintain a high level of availability. And in infrastructure businesses, these investments are justified and recognized in a regulatory fashion, and they are also remunerated. So we do have good remuneration at TAG as part of our maintenance plan. On average, we have investments of BRL 300 million for the coming 3 to 5 years. And this will mean we keep a team of specialists of engineers that are very busy. These are different areas depending on the part of the pipeline, especially in the state of Manaus. The reliability and availability standards are comparable to international standards. And these are -- this is the ABC of our business. We operate 24/7. The entire day, we want our consumers to receive gas always at the right pressure and with the right quality. And TAG develops as a heavyweight industrial operator in the sector because of its results.

And in transmission, I think the situation is not different. The capacity of implementing projects and operating assets, that is something essential. And Gustavo, you have had a consistent trajectory in your implementation of projects and high performance in your transmission assets. Now which is the performance that represents a differential to be able to maintain these results?

That is a very good question. When you speak about operation, you have to have a quality operation to have a quality asset. And operational performance begins at the stage of implementation of development so that we can follow high engineering standards that will facilitate in quotation marks the life of the operator. And you mentioned this, and this also extends to TAG. We have a control center, a remote center working 24/7. TAG is in Rio -- ours is along with transmission in the Florianopolis, highly modern and perfectly prepared for the preparation of assets and to carry out that sensory analysis, enabling us to follow up on real time. If there has been any change, is there the presence of gas in some equipment, any changes of temperature. We send a team to the field. We analyze it sometimes with the manufacturer. Oftentimes, we have gone there to change the equipment and put in reserve equipment, which is important. But I would like to convey 2 very important points to you, the technical capacity of the team and that permanent quest for efficiency and innovation. We speak about artificial intelligence, but not only in the part of implementation, but in operation as well, we tend to use drones that optimize the process in maintenance, for example, carrying out the proper supervision of our assets and in remote cases, depending on the locality. This also allows us for a better cost efficiency. During implementation, we're launching cable work with the use of a drone, and this helps us environmentally as well. Sometimes we're in an area where IBAMA is more rigorous in terms of its supervision. We put in higher towers to go beyond the canopy of the trees. This decreases suppression. Of course, there's a limit of distance between the tree and the cables. We have to respect this. And we always have that cost benefit ratio that has to be analyzed. Recently in the Grauna project to minimize environmental impact and to foster the economic financial balance we have a new tower that is being tested, and we will implement this in our projects. So this is a constant quest for innovation. And I saw in the previous panel, and I wanted to reiterate this here that we're all very alert and concerned with the problems brought about by El Nino. We deem there will be enormous impacts in the South. We had a project of CIMA of towers that were -- that fell. We had to have divers to resolve this situation. Of course, the projects are not built to go through a tornado. If you have winds of 100 kilometers per hour and then are faced with 300 kilometers per hour, we have to have contingencies to offer immediate responses. And in the case of hydropower plants, we're working in coordination with the ONS. It's almost a self-help community that allows us to be prepared. We are faced with these climate issues and rainfall and heavy wind conditions, and we try to anticipate our activities. We have a team, the community and all stakeholders, and they are important for the resolution. So it's important to have a good relationship with the stakeholders. We need to receive rapid information and act immediately.

Very well, similar to other panels, we're going to take a look into the future. And the question is similar to that made by [ Donato ]. If it were 3 to 5 years ahead, 2030, what is it that you would like to share as success or a new framework for TAG or in the field of transmission?

Well, for TAG or for the gas sector, we hope to have gone through this regulatory pace in a very stable way, ensuring that we have guarantees and greater confidence in the future. There is a great deal of potential for gas that could be exploited in Brazil and that TAG will have been able to invest according to the appetite that we have and the confidence that we have in this sector and to connect the gas sources to the consumer, which is what we do at TAG, we say keep the gas flowing, keep people safe and keep the gas flowing. So looking behind, we want to have results that will reflect our safety and industrial security principles, delivering gas throughout Brazil at the right moment, at the right point and with the right quality. This would be a reason of pride, not only for TAG, but for all the shareholders in the sector.

Thank you. Gustavo?

Now looking forward and looking at the challenges that we have to date, first thing we need to do is to deliver the projects that are underway to meet the deadlines and meet the budget. So it's very important to get there and look back and say we deliver on our promises. We talked a lot about the auction, but we need to execute on the projects as well. We also have the challenge of the new technologies. The renewables team, Guilherme team was really a partner helped us in the auction for the rotating machines, but we also have the continuous current auctions. We're going to have major auctions coming up in the future. The -- one of them is BRL 20 billion. So we need to be prepared in order to take part. This is very important. And I also want to convey to leave you with the takeaway. Looking inwards, like looking in-house. ENGIE wants to have 10,000 kilometers of transmission lines by 2030. Brazil is going to be the greatest contributor to that. So I hope we can come here in the future and saying that we delivered on this promise as well. Also integration with the other countries. Satta mentioned how we can tap ENGIE's experience in other countries with our contact with suppliers and their technology. In the case of transmission, we are exporting knowledge. So we need to have a more integrated work in Brazil, Chile, Peru, which is where our assets are located. We're also looking at South Africa and maybe the U.S. So this is another point that I think that I desire for us in the future. And we also had the recent acquisition of UKPN, which is a power distributor in England, which has 3 permits to operate in the London area, nearly 200,000 kilometers of distribution lines, 3/4 of them are underground. So we will also have the opportunity to learn from this even if in distribution. So having this technology and the development of underground lines. And I think this will be present in the future in Brazil. When we talk about large urban centers, I think this could be an alternative. We have had some auctions looking at this alternative here. So being more integrated with the group and this exchange of experience is fundamental. So a positive takeaway -- without transmission, there's no transition. So this is my positive message transmission from me, I always say this, but these are the 3 pillars of energy, power security, sustainability and the environmental part. And so energy available for all at competitive prices. And this is not the point of this panel. But when we talk about power security, we don't have to demonize any of the sources. When we talk about battery, thermal power or they are complementary, battery cannot operate for 10 hours. Thermal power can operate for 10 days or the entire year if we have that hydrology, but battery cannot. So we have to have complementary sources and technology alternatives in order to ensure power security and provides the system or the power industry with the security and flexibility that it requires.

Thank you all for your participation. Thank you.

Can you stay a little longer?

Yes.

We have a few minutes for Q&A. Any questions? Tomaz, Gustavo and Thais will also stay for coffee. Any questions? We have 5 minutes for Q&A. No questions? All right. So thank you all for your participation. Thais, Gustavo and Tomaz. Thank you. So now let me explain how the -- our coffee will work, and I would like to call Sattamini and Pierre to the stage for their closing remarks. Sattamini, please and Pierre?

I will speak Portuguese. I apologize for my accent. So in conclusion, I want to reinforce 2 takeaways. First, about our financial discipline and the second is the support from the group. Financial discipline is an element that is professional to our strategy. It guides the way we evaluate each of our opportunities to grow. Our capital allocation starts with very clear criteria on the returns expected, adjusted to the risks, ensuring that every decision can effectively contribute for value generation. Brazil is a strategic market for ENGIE and will continue to play a very important role in the group's global strategy. We are confident about the quality of our assets, the quality of our teams and the opportunities that we have ahead of us in this country. We will continue to invest with financial discipline, contributing to a more secure and safer and competitive and sustainable energy transition. So I'd like to thank you all for being here. And thank you for your support.

Thank you, Pierre. That was great. Your Portuguese is very good. And it's very nice to hear you speaking in Portuguese because that really shows the appreciation that our French controller has for our country, Brazil. And this is true. This week, we had -- well, during this week and still going on today, we have a -- the future Chairman of the Board. He is today the Deputy Chairman, and he will take on the role of Chairman in the end of the year. And he's here, and he has reinforced the importance of Brazil and his trust in the team we have here in the assets, in the way we do business. Despite the turbulent political times in the country, they -- and they have a global view, and they see that this polarization between left wing, right wing is taking place any -- everywhere. But of course, this creates situations that are not exclusive of Brazil. So they are very comfortable stating their support to us to our investments. They know that we conduct our business with financial discipline. And the discipline of the Brazilian team itself is especially high. They're very comfortable knowing that we will not make any local decisions that are disconnected from the overall principles of the group. This makes us -- this is reassuring to us, it's reassuring to our investors and they stated this trust in us through the last transaction we had incorporating Jirau because if had we not been able to increase the capital through the benefit of incorporating our stake in Jirau, which really added value to ENGIE Brasil Energia, they would have given us the resources for our capital structuration so that we could continue with space to grow in our balance sheet. So it's very important to rely on the support of our investors, not just from our controller, but also institutional investors and of the 250,000 individual investors that trust in us. So we are here to report to you, to have a transparent conversation, and we expect to continue to count with the trust of all of you. Thank you.

Thank you, Sattamini. Thank you, Pierre.