Neoenergia S.A. (NEOE3) Earnings Call Transcript & Summary

Good morning, and welcome to the call regarding the second quarter of 2020 Neoenergia. This presentation will be conducted by Mr. Mario José Tagle, the company's CEO; Leonardo Gadelha, CFO. I'd like to remind you that we are transmitting simultaneously this through Internet webcast and you can access it at ri.neoenergya.com, where we also have the presentation available. [Operator Instructions] This audio conference is being performed in Portuguese and it's being transmitted into Portuguese. [Operator Instructions] This event is being recorded, and it will be available in the IR website of Neoenergia. I'd like to remind you that this shows situation of the business. The information contained here have been prepared carefully. But the information that we provide here, they reflect the precise moment when they were collected. They reflect the conditions of Neoenergia right now. This information is subject to alterations. This presentation should be seen only together with the oral presentation of Neoenergia. Neoenergia cannot be responsibilized or [Technical Difficulty] This should not be reproduced, distributed or published by third parties or even be used by any other purpose without previous authorization. I'd like to remind you that this can contain projections from Neoenergia about future events. They involve several risks and uncertainties. I'd like to give the floor to Mr. Mario José. You can proceed now.

Good morning, everyone. Thank you very much, operator. I'd like to thank you all for the assistance in this teleconference and for this presentation of results of the 6 months of 2020 at Grupo Neoenergia. I have here with me in this meeting Mr. Solange Ribeiro, Deputy CEO; Leonardo Gadelha, who's our CFO; and Capelastegui; and Renato Rocha. I'm going to do a brief presentation about COVID-19 and its impact, and then I'm going to go into the highlights of the results. And then Leonardo is going to present into further detail the results so that we can go to the Q&A. In almost 7 months of 2020, this year has a place in our history due to COVID-19. And second quarter was affected, and all the Brazilian lives had their lives affected. In Slide #4, we talked about the actions that Neoenergia has implemented. We want to ensure people's safety and the safety of our business in the following dimensions: people, investments, finance, economic balance and our contribution to society. We have adopted all health and safety measures together with our workforce so that almost 34 million people that depend on us can still have the comfort of receiving energy in their homes. And our investments and our expansion projects should not be delayed. I would like to congratulate our IT and cybersecurity team, our frontline workers for their commitment, their dedication in such a complex period of our lives. And that's how we can give an essential service to the population, most of all in this moment when they are working from home. These services were delivered with excellence and quality. In this opportunity, I would also like to congratulate our IT teams. They were key so that we were able to move 4,800 collaborators who can now work remotely. And we've also preserved the situation of our company. When we look at investments, our expansion projects both for wind and transmission, they follow on their course, ensuring the returns that are stated in our business plan. As a consequence of this pandemic and of the shrinking of the market due to COVID-19, we are putting aside 10% of our CapEx for our distributors -- from our distributors. As for our financial balance, the measures adopted by the federal and state governments and also by cities have caused a contraction of the consumption of energy, an impact in economic activity with a direct and unforeseen impact in our activities. The consequences of this fact are separated from the risks that we are able to manage. Brazil has a tested and robust regulatory framework for the electric system. And we have the guarantee of our concession contracts. This is one of the main foundations of this framework. Now we have to show that the electricity sector does respect the contracts, and that's why the risks are low for our sector. The COVID account for the sector of 2020 -- in 2020, we have 4 distributors. This will represent approximately BRL 1.7 billion in cash. These resources will go into the third quarter for our company. And we have foreseen that they will be incorporated into our cash in the third quarter. This is going to bring stability to our sector as it is complemented by a financial economic balance in the production sector. So the following step is to restrike the economic balance of our distributors. So we have been acting together with ANEEL and the government so that there are clear structures about this important front that should be faced as a priority. So that in a fair manner, distributors can balance its impact -- the impact they suffered and due to the pandemic, most of all, when it comes to the drop in demand and increased delinquency. In our specific case, we are making an effort to fight those impacts. And there was a decrease in the market and an increase of delinquency, as I mentioned. BRL 278 million of impacts in the third quarter and BRL 298 million if we consider since the beginning of the crisis in the last days of March. So we restate our commitment to Brazil. We have our concession areas. Our -- we are proud of having donated 100,000 COVID-19 tests for Fio Cruz Research Foundation in a moment when they were quite scarce. We have also donated ventilators for the Federation of Industries of the State of Bahia. And we have a foundation, Transforma Brasil, who has supported 155,000 families with hygiene equipment. We also donated air-conditioning equipment for several field hospitals. In the next few days, we will receive 50 new Chinese ventilators, which we'll donate to the areas we work in. We are facing this crisis, of course, with difficulty but with a lot of effort. And I believe that our results will show the performance of the company. We're going to Slide 6 now to look at the results of this quarter and of this semester. These are tough times, but we go on firmly with our efficient cost management. We delivered operational expenses in the second quarter 8% below the same period of 2019, 5% below in the quarter when compared to the same period of the previous year. By doing that, we can absorb inflation pressures, we can grow our base of customers, where we have over 2,000 -- sorry, 200,000 customers. And there was an increase of our head count in 637 collaborators because now our distribution and execution services are primarized. Our EBITDA for the second quarter reached BRL 1.1 billion, which is 19% down when compared to the same period of 2019. In the first quarter, the EBITDA was of BRL 2.6 billion, down by 3% when compared to the same period of 2019. Both were directly affected by COVID-19, of course. Our net income in the second quarter was BRL 423 million, down by 18% when compared to the second quarter of 2019. And the net income of 2020 for the semester was BRL 999 million. This is down by 1%, so aligned to the first semester of 2019. This is also the result of the negative impacts of the pandemic. We are working hard when it comes to cash and liquidity in our company. This has allowed us to finish the semester with a net debt EBITDA rate of 3.07%. Even without revenue from COVID-19, that will come into our cash in the third quarter, as I mentioned. We are waiting for a recovery of the economy to start on the third quarter, of course. We've executed throughout this period that we faced not just us, but also our competitors, a CapEx of BRL 1.4 billion in the second quarter of 2020, which is 49% above the second quarter of 2019. This is about BRL 2.3 billion in the semester, which is 30% above the first semester of 2019. And that is a result of the advancement of our projects of growth in transmission and wind. And we've also invested in distribution. We are now on Slide 7, please, where we can see an evolution of our transmission projects. First of all, I'd like to state that our transmission projects are within budget and have good perspectives of being finished before we had foreseen in the business plan. So that's how we ensure profitability even in front of the challenges we face because of COVID-19. So we are working strictly looking at health and safety measures in our working sites. Regarding the lots from April 2017, we have delivered 3 substations from Lots 20, 22 and 27, all before deadline, before schedule and below CapEx foreseen by ANEEL. I'm also very pleased to tell you that before the original forecast and 25 months before the ANEEL deadline, we have delivered to the system the first of 5 tranches of Lot 4 from the same 2017 auction. We intend to deliver throughout the second semester another tranche of this line so that we will be able to receive more or less half of the RAP from this lot. So throughout the second semester of 2020, we will be receiving approximately BRL 70 million of the annualized RAP from the April 2017 projects before our business plan, which is something that should be celebrated. It shows our execution ability and our discipline to allocate capital. Regarding Lot 4, in December 2017, we have the equipment for the substations. And we have renewed our IBAMA installation license for the lines and substations that belong to Abengoa, and they will be using the execution of this project. The building companies are already mobilized and working on site. This lot specifically has perspective of significantly moving forward the deadlines of the business plan, as I mentioned. And Lot 6 of the same auction from December 2017 is already with the building companies working on site in Caramurú, which is the substation. According to our expectations, it should also be finished before stated in the business plan. And the 4 lots of December 2018, the highlight was the attention of the DUPs for all the lots 3 months before plan, just like the license for the installation of the Lot 14 substations. These are the Marmeleiros and the Livramento substations, which are being built Marmeleiros by Caramurú and Livramento by FEPAM. In 2017, their works started 1 year before the auction itself. There are installation licenses for their other lots. And we managed to have authorization from IBAMA to have virtual public hearings, which is very welcome during the social distancing measures. So this will not have an impact in the licensing deadline of these lots. Regarding Lot 9 from the December 2019 auction, we have 97% of CapEx hired, and the concession contract is already signed. And works will start by the end of this year or early 2021. We currently have almost 270 people working in our transmission projects with very severe health and safety measures that are coordinated with local authorities to avoid contamination and also ensure the continuity of our projects. Moving on to Slide 8 now. This is about the wind projects. The implementation of 15 wind farms in the Chafariz Complex in the state of Paraíba, they are moving on. So we are also before our business plan. The park has 100% of CapEx already in hand. The works are quite advanced, with 107 of 136 foundations that have been already excavated. And 18 of these foundations have been concreted. The provision, the forecast is that this park will start working in January 2022. And we are on budget and on schedule, even in the face of COVID-19. We have a commitment to fight climate change. And in 2019, we used the construction of 12 wind parks farm -- wind farms from the Oitis Complex. They will start operating in mid-2022 with 566 megawatts of power, and 96% of its energy will be focused on the free market. So we want to serve final consumers, end consumers, and therefore, to ensure the participation of Neoenergia in this movement of the free market in the Brazilian energy market. The concession contracts of these farms have been signed, and I'm very pleased to say that we have GE as a turbine provider. The models are GE 158 of 5.5 gigawatts. So with the Oitis and Chafariz wind farms in work, Neoenergia Group will have half of its wind energy in the free market. Out of this energy, 42% has already been commercialized between 2022 and 2024 at average prices of BRL 189 per megawatt. We currently have almost 1,200 people working in the Chafariz project and as I mentioned under very strict health and safety measures coordinated by local authorities to avoid infection and to ensure that these projects can move on. I would like to give the floor -- I'm going to give the floor now to Leonardo Gadelha, our CFO, and he's going to give us further details about our second quarter results and also the first semester of 2020.

Thank you, Mario. Thank you, everyone. Good morning. I hope you're all safe and with good health in such a challenging period of our lives. I'm going to Slide 10 now, talking about consolidated results just like we usually do. So we see that in this quarter, our gross margin -- consolidated gross margin dropped by 8% to BRL 2 billion. This decrease was caused by distributed energy. There was a drop of 8.3% in this quarter due to the pandemic. However, this has been offset by the greater number of clients and by some fee readjustments. In this semester, we had a growth by 2% in our gross margin. So that's BRL 4.4 billion in the semester. I'd like to remind you that within this margin, we've included VNR and IFRS 15. VNR in the second quarter was negative because it's updated by the IPCA inflation rate, which was negative in the quarter. So in comparison with 2019, VNR had a negative impact when we compare the 2 years, the second quarters of the 2 years. The IFRS 15 was positive between quarters because of the advancement of construction works and transmission projects. As Mario previously mentioned, the cost line was one of the highlights of this quarter. We have presented a reduction of 8% in consolidated numbers, moving on a positive trajectory and consistent ones, most of all in our networks as we will see in a minute. Of course, COVID-19 played a role, but I'd like to mention that management was key to ensure those results. We absorbed the impacts of inflation. We've absorbed the growing number of clients, and we have 637 collaborators when we compare 2019 to 2020 because now we have activities that became primary. Moving to Slide 11. Here, we see that our EBITDA, there was a drop of 19% in the quarter. And right to the side, you see in the first quarter, the EBITDA without VNR and IFRS 15, the combined effect of BRL 64 million, the second quarter of 2020 and BRL 106 million in the second quarter of 2019. Therefore, there's benefit to this comparison. So if we compare the 2 quarters removing the noncash effect, so VNR and IFRS 15, there was a 15% drop in EBITDA. That was the EBITDA cash, so to speak, with a drop of 15%. When we compare semesters, we are aligned at the same level, 0% variation. Out of this EBITDA in the semester, 85% was generated by networks business, 9.5% was generated by renewable energy and 6% by liberalized or free market. On your low right-hand side, you see the impacts of COVID in our results. BRL 278 million in distribution between effects of the market and delinquency, as you see, and BRL 14 million from the commercialization. That's a total of BRL 292 million in the quarter and BRL 312 million in the year so far. Slide 12. We have now a vision of our net profit for the second quarter, BRL 423 million, down by 18% when compared to the same period of 2019. In the semester, we are down by 1%. On your right-hand side, you see the COVID-19 effect, but the difference is essentially of income tax. So we have the impact of COVID, BRL 118 million in the semester. I'd like to highlight that this comparison of the quarter has negatively -- was negatively affected by interest of our own capital and the 4 distributors in June. We usually do that, but there was a change this year. We are not doing that because of COVID-19. So we've postponed these interests or the declaration of this interest. If we had declared them in June -- or the interest over our own capital, the net profit would be BRL 56 million better. So we will capture that by the end of this year, depending on the evolution of the events. But we are going to declare that. The impact will disappear. But this hinders our comparison in BRL 56 million because we are not declaring this right now. Slide 13, talking about CapEx. Regarding our investment plan, we finalized the semester with BRL 2.3 billion in CapEx, and BRL 1.3 billion is in the second quarter. So we are at a higher pace -- at a stronger pace than in the first quarter of 2020. This is a reflection of our transmission and wind projects. 89% of the total was targeted at our business -- at our network business. That includes distribution and transmission. So BRL 796 million for distribution, including the expansion of the network and fighting losses. So we have BRL 372 million in the building of transmission lines. So you see an increase in our pace compared to the first quarter of 2020, an acceleration of our -- the rhythms of our works in the transmission lines. In renewable energies, we also had an acceleration. We've invested BRL 166 million, BRL 29 million of those in hydro and BRL 137 million in wind farms. So we see here a ramp-up of the works at the Chafariz Complex in the state of Paraíba, as Mario mentioned. In liberalized, we've invested BRL 34 million, essentially in the acquisition of equipment for program maintenance of Termopernambuco this year. And as Mario mentioned as well in the beginning of his presentation, due to the shrinking of the market, we have set aside 10% of our CapEx of distribution for this year. I'm going to now move to Slide 15. You see the results by networks. This slide shows the evolution. It's an information that we had anticipated. So energy injected in 4 distributors, as we mentioned to the market in an announcement last week. So in the quarter, we saw an average decrease in the 4 distributors of 8.95% compared to a strong growth history that we had. As you can see in the comparison, since 2010, we had consistent growth. Of course, this is the impact of the pandemic. We see the impacts of that from late March on. So all distributors had important drops -- decreases. 4 distributors had the same -- follow the same standard. All of them had an increase in injected energy and residential class, and there was a decrease in other categories. The one exception was rural from ELEKTRO because there's greater demand for irrigation systems. Slide 16, you see a vision of distributed energy. Here, the drop was a bit smaller, 8.3% when compared to the second quarter of 2019. By the end of the quarter, we had 14.1 million consumers. So that means an increase of 229 -- 219,000 clients in the last 12 months. In spite of this decrease in distributed energy in the quarter, when we look at the market as a whole, captive and free market, we see an increase from -- in the residential category. That moved from 35% in the first quarter to 38% in the second quarter of the year, which is an impact of what I just mentioned. There was an increase in the residential category. So that has a positive impact in our mix because this category pays higher fees than the others. Slide 17 is about losses, total losses in the last 12 months. And here, we see we had a good performance in the quarter in spite of COVID-19. We've maintained 2 distributors within regulatory boundaries. They are COSERN and ELEKTRO. And we can see that in 23 of them with COELBA, COSERN and ELEKTRO, we had an improvement when compared to the first quarter in spite of the difficulty in doing the inspections during this pandemic period. But that didn't stop us from having this improvement. At CELPE, that's our main challenge. We've had a slight decrease regarding the first quarter of the year, which can be explained by a reduction in the demand of clients from the high-tension market. Of course, that happened in all of them, but CELPE is a specific case. I'd like to highlight in the bottom of the slide, you see the 4 distributors, and there was a reduction in loss energy in terms of gigawatts per hour when compared to the first quarter of 2020. So in absolute terms, we had a decrease in all of them when it comes to loss of energy. Slide 18 talks about what we call PECLD delinquency rates, provision for loan losses. So you see here a forecast for the quarter. As you can see, in this quarter, in the second quarter, the 4 distributors were impacted by worse collection. They are above regulatory limits. On the right-hand side, you see that in the second quarter, PECLD regarding COVID was BRL 127 million and year-to-date, BRL 147 million. This criteria takes into account not just the volume that was not collected but also the aging of accounts payable, which are already due. So our PECLD is about double what it was in the first quarter of 2019. So we moved from BRL 108 million to BRL 209 million because of this higher provision for loan losses. And on the following slide, you see more detail about that. So you see collection numbers. As you can see on the table on the left-hand side, on June, when we look at the comparison between 2020 and 2019, the first 6 months of the year, we see that collection was 3% -- almost 3% below the same period of last year. Throughout the second quarter, there was an evolution in collection throughout the months. You might remember that in our last call, you asked us, how is your collection? That was April, right? And we mentioned that it was around 12%, the decrease. So there was an evolution, indeed, throughout the last 3 months. We're now at 3%. That's the difference. But the aging of our accounts receivable over 90 days of maturity, and there is a restriction to energy cuts. So that's putting a pressure on our PECLD and our delinquency rates. In the quarter, the trend is better for collection. But I'd like to mention that part of this improval in collection is due to several initiatives, such as -- that we took as a company, such as the possibility of paying in installments and payment through credit card. We signed a contract to use Caixa Econômica's Virtual Card to pay the bill, so clients can now use a virtual card from Caixa to pay for their bills. We ran several media campaign and some initiatives I'd like to mention, what we call a Bonus. It's a flex bag. We provide a voucher for clients that pay for these accounts. They give an incentive to regularize these delayed payments. And there's an action that we call Digital Solidarity. Clients that can pay for the bills and electronic media, they do -- they are entitled, so the company makes a donation for charity also to foster that, mostly when it comes to debit. They are having impact, and we see this trend. Slide 20. In Slide 20, we see our DEC, so that's hours unavailable. All distributors are within regulatory boundaries, and this is connected to a reduction of costs and a better operational quality. On Slide 21, you see FEC, the frequency of incidents. You see the average. We've evolved in 4 distributors and we are below regulatory coverage for 4 of them, okay? Moving on to Slide 22. You see the results in networks and margin. It's our gross margin for the network business. It was down by 9% in the second quarter. Of course, the impacts of COVID and distributed energy. There's a revision of ELEKTRO in August '19 and tariff readjustments and an increase in the base of customers. We had a positive impact in the mix of clients that I've also mentioned. There was an impact of about BRL 30 million also in this margin. Again, this margin includes VNR and IFRS 15 that has no impact on cash. VNR had a negative impact of BRL 57 million already updated by the IPCA inflation rate, which was negative in the quarter. So when compared to the second quarter of 2019, VNR had a negative impact of BRL 136 million. That was the delta of the VNR between the 2 quarters. The variation of IFRS 15 was positive and BRL 64 million. So when we look at the net impact in the comparison, it was negative in the second quarter of 2020. Regarding PMSO in networks, we've reached a reduction of 10%. In this comparison of the second quarter of 2019, we are continuing our work to capture efficiencies. We are internalizing electricians to our staff. So we are reducing our cost with service providers. And we absorbed inflation, and there was a growth in our base of customers. Slide 23, that's our EBITDA, down by 21% in the second quarter. It reached BRL 935 million. When we look at the ex-VNR/IFRS 15 EBITDA, it was down by 16% due to the negative impact of VNR, as I explained before. The EBITDA was affected by BRL 278 million due to the impact of COVID-19 in the market and in delinquency rates that was -- so that's BRL 298 million in the semester year-to-date. So as for distribution, there was a decrease of 28% in EBITDA. And in transmission, there was an increase of 93% due to the greater number of projects that are now operating. Slide 24, you see net profit. As I've mentioned, there was a decrease of 29% in the second quarter, down to BRL 384 million. And in the semester, we have accumulated profit of BRL 996 million. That's down by 2%. The impact of COVID represents BRL 209 million in the semester. I'd like to remind you that this result has been affected by the delay in the declaration of our interest of our own capital and the 4 distributors combined, and we expect to capture that by the end of this year. Slide 26, when it comes to renewable energies. We are now looking at this renewable business. And there's a drop in EBITDA by -- to BRL 159 million in the second quarter. So here, you see detailed numbers both for hydro and wind. Starting with wind energy. They -- it was negatively impacted by less wind in the quarter. So EBITDA was down by 23% when compared to the first quarter of 2019 in spite of availability according to program. The hydro results were also negatively impacted in BRL 5 million. And here the main factor is Belo Monte because the energy was sold at a PLD price in the northern region of our country. Net profit in renewables were BRL 79 million in the second semester -- in the second quarter, so up by 41% due to deferred taxes in some of the companies, and that led to this increase. In the semester, you see the decreased numbers here. On Slide 28. Liberalized, an increase of 27% in EBITDA. In the second quarter, we reached BRL 70 million. This was caused by Termopernambuco. It was pulled by Termopernambuco. Generation was lower in the second quarter, but they acquired energy at a very low PLD. Our commercializer had a negative EBITDA in the second quarter, BRL 44 million. Out of those, as I mentioned, BRL 14 million were caused by using flexibility clauses from the clients in the free market due to the COVID pandemic. In the semester, there was an evolution of 65%, which reflects this new commercial approach, focusing on final customers. BRL 43 million in profit in the liberalized market in the second quarter, 54% up when compared to the second quarter of 2019. Capital structure, you see that's on Slide 30. So in the second quarter, in spite of the impact of the crisis -- of the COVID-19 crisis, we preserved a very controlled standard for leveraging, 3.07x, as you can see. And even during the crisis, I would like to mention that we've elevated our cash by BRL 1 billion. On the right-hand side, you see that our cash finished this quarter in BRL 5.6 billion and net debt of BRL 17.3 billion, so below the first quarter of 2020. So yes, we did have an improvement in spite of the crisis in the second quarter. We have -- we still have a very robust balance. We are comfortable -- in a comfortable situation with only 19% of debt in the short term. By the end of the year, if you add the principal and the interest, we have BRL 2.1 billion up until the end of this year. So below our availability. And thanks to a strong liability management work that we've carried on since last year, we've reduced the cost of our debt and we prolonged our debt. The average maturity now is 4.4 years. So this average maturity has been prolonged quarter-on-quarter. Regarding our transmission and wind projects, we've assured the funding for most of them in very favorable conditions, as we've also communicated to the market. Every time we've signed an important contract, we communicate to the market. So our debt is quite diverse, pulverized, and with no currency exposition whatsoever -- foreign currency exposition, which is important. On Slide 31, last slide. I would like to highlight that in the quarter, we have a total of BRL 1.2 billion in disbursements. Amongst these operations, I'd like to highlight BRL 366 million for the Chafariz Complex -- BRL 365 million, BRL 274 million for the Jalapao Transmission line. Both -- that's financing with BNDES. This is under construction. But yes, we have BRL 274 million already available. We also have BRL 30 million with BNDES also for the Chafariz Complex. You see the cost, which is quite competitive, IPCA plus 1.96%. We've also reinforced our cash at ELEKTRO, BRL 260 million. And with different banks, different institutions, we've assessed less obvious institutions. So we have Credit Agricole. And finally, in July, so outside of the quarter, okay? It's not included in the BRL 1.2 billion. We have a line with Canada, BRL 427 million, EDC. That's with EDC. And the cost is 110% of the CDI. So again, a very favorable condition. So we have over BRL 3 billion in disbursements this year alone. So we have broad access to different sources of funding from the market, as you can see, very good conditions. We now have a deal to the so-called COVID account. And then by the end of the third quarter, we will have received BRL 1.6 billion and the 4 distributors, which will strengthen our balance. And this is going to be an off-balance number, of course. So that's the end of my presentation. Operator, we can open up for the Q&A session.

[Operator Instructions] The first question comes from Marcelo Sá from Itaú.

I have 2 questions. First question is regarding the tax reform, which was sent to the House yesterday. We have PIS/COFINS at a higher 2% rate. Are you assessing what the impact of that to your companies in the different categories? Do you believe transmission or distribution? Could it be a pass-through? Does that depend on the contract? And my second question is connected to the same subject. How do you see the energy that was not contracted or that was removed from the contracts, what its impact for you?

Hello, Marcelo, how are you? Well, regarding the tax reform, there are 2 important aspects. The first is a macro vision. This is a very positive event. And the government should keep on evolving. We hope that the Congress will go on discussing these structural reforms that are very important for Brazil. Maybe the most important one is the tax reform because it will simplify things. It will unify taxes. Regarding PIS and COFINS, we are still looking at the legislation presented at the bill. But taxes for distributors are passed through. They are installment A of the tariff. So these are non-manageable costs, and they are fully transferred to consumers. So from that perspective, we will just define the potential impacts for the Neoenergia Group. Second question, sorry, your connection, it was not very well. Is it about energy that was not higher to remove from contract?

Yes.

I believe that for the amount that has been hired for generation, this pass-through -- I'm sorry, for the PIS/COFINS would have a pass-through to the final customer. But for the amount that you have that was not hired, probably this rate would be of 2%. Is that right? Maybe that's going to have a negative impact for the companies, at least for the contracted or hired part of it.

Well, then we have to analyze case -- on a case-by-case basis. In the contracts, we're going to have to see if this is pass-through energy indeed. PIS and COFINS, up until yesterday, there was a discussion in Congress about that. So the final impacts are hard to foresee right now. But when we have a more precise analysis, yes, we will contact you and give you that answer. It's still too early, I would say.

Just one final question, if I may. Looking at the results, there was an impact of BRL 300 million due to COVID in volume and delinquency. I believe that this is an accounting -- an accountable impact but not a cash impact you've had. When it comes to credit, the credit lines that you have, which is BRL 1.6 billion, looking at the impact that you had with COVID up until now, it seems to me that the amount is higher than what you'll need or than the real COVID impact. Do you know what's the cash impact of COVID so far so that we can compare that to the credit that has been approved?

Two things are important in that case, Marcelo. First is a vision, an overview of the COVID account, so to speak. The COVID account is the resource that distributors are receiving to absorb the impacts of the so-called installment A. The impacts of installment B are not contemplated by the COVID account. So when you look at the amounts, we have presented this on balance. This was a discussion that distributors had in the past with the regulatory agencies, and this should take place in the second stage of the program on the third quarter. Eduardo Capelastegui can give you more detail about the cash impact in the quarter of COVID.

Marcelo, good morning. Answering your question about funds, right, if we have enough funds comparing the amount we will receive until September, which is BRL 1.6 billion or BRL 1.7 billion versus the cash impact we've had so far. In the second quarter, between market decrease and collection decrease, it's better than what we had, BRL 180 million for market, approximately BRL 400 million in collections. So yes, we are a bit better in effect. But we still have a semester to go, right? And it's a very uncertain period on how the market's going to behave. Government can keep on helping us or not. So it's still early, we believe, to know whether this amount is going to be enough or not. We're doing well so far. But yes, as I mentioned, we still have 1 semester to go, and there are so many variables involved. And the first one is the pandemic itself and how it's going to evolve. We still have to watch a bit what's going to happen.