Good morning, and at this point, we would like to welcome you to the ENGIE Brasil Energia's conference call, where we will discuss the results of the first quarter 2020. All participants are connected in listen-only mode, and we will then go on to the Q&A session when further instructions will be given. Should you require the help of the operator during the teleconference, please press star zero. We would like to remind you that this conference call is being recorded. This presentation, followed by slides, will be simultaneously transmitted through the internet through the site www.engienergia.com.br/investor section. A slide presentation and the company's earnings release are also available on that website.
Before proceeding, we would like to clarify that forward-looking statements made during this conference call regarding the business outlook of the company should be treated as forecasts that depend on the country's macroeconomic conditions, on the regulation of the electric sector, besides other variables. They are therefore due to changes. With us today, we have Mr. Eduardo Sattamini, the CEO and IRO Officer; Marcelo Malta, the company CFO; and Rafael Bósio, Investor Relations Manager, who will speak about the company's performance in the first quarter 2020. Ensuing this, we will go on to the question and answer session. We would like to remind journalists who wish to ask questions that they can do so by email, sending them to the company's press office. It is now a pleasure to turn the call over to Mr. Eduardo Sattamini. You may proceed, sir.
A good day to all of you. It's a pleasure once again to be with you, with our CFO, Marcelo Malta, and our Investor Relations Manager, Rafael Bósio, to speak about the results of the first quarter 2020 and our expectations. We're going to speak about financial indicators. Marcelo Malta will speak in greater detail about our growth and perhaps in more detail about our numbers and our decision to have a somewhat more robust growth compared to the previous three years. Of course, this will have an impact on the growth of our business, and we will speak about our leverage and try to speak about a more adequate capital structure for the company at this point in time.
Our EBITDA has increased almost 2%, and our net income still does not reflect this growth of 19% because of the coming into operation of some of our projects, especially Tampa, that has a natural curve in an electric plant. This is something that has been tailor-made, and of course, we need revenues for this. We are making adjustments, and at present, we're going to be changing one of our lines, and this is due to the undesirable emission of particulates and other things. Because of all of these reasons, we have not presented the results that we expected. The impact has not been greater on impact as it should, and this is also happening.
The expectation is that once we make these adjustments, this asset will go into normal operation as of the second semester of this year, perhaps the end of the third quarter. The net revenues and EBITDA, of course, will go through the necessary changes. We have, in terms of production, BRL 3 million and some for the first quarter 2020. We had the acquisition and the participation of TAG, of course, as part of our net debt, and a reduction in production in this first quarter, once again due to a decrease of energy in the South Region because of difficult hydrological conditions. Our sales increased, of course. Our sales increased volumes 3.5%, and the average net sales price increased 2.2%, as you can see. Once again, our assets are doing very well.
At the end of the first quarter, we had, of course, the very strong impact of COVID-19, where we had to adopt several measures which are still underway. This morning, we celebrated one more meeting to see what is happening in the different regions of the country. This has an impact on several of our units, and we have to be very attentive to the movements and the situation in each specific site to be able to adopt specific measures. We're, of course, at present having 70% of our employees in home office for the non-operational activities, and this is thanks to the digitation process that has been underway during the last six years.
We were somewhat surprised with the ability of working remotely through the use of software, of course, and other technology, which has made it possible for our employees to work with specific applications. We have been able to have a very satisfactory interaction with a very high productivity rate. We do not believe that this will be permanent in the future because the interaction among employees is of the utmost importance. For the time being, we are using this mixed work system, obviously to provide greater comfort to people, greater security without a significant impact on the company, but reducing the mobility of people. We are acting with rapid tests with our employees. We have purchased more than 36,000 rapid tests that we are using on our work sites to be able to work with prevention and control. We have had several cases, which is natural because of the environment.
Once again, we have carried out these tests, and we're using the IgM, an antibody that has been possible to isolate, and this is what we're using on our work sites. 90% of our employees have been asymptomatic thanks to these continuous efforts. Of course, we want to make sure that at our work sites and in our operation sites, we continue to work with the utmost prevention. This is very important because we are extremely concerned with public health. We have a great deal of interaction with public health authorities for this. We are co-responsible with our employees, and we're doing whatever we can. Our voice perhaps is not very clear, but we're strictly complying with our security protocols. These communities, of course, are undergoing a great deal of difficulties. Many of them are not able to continue with their normal activities.
Because of this, we're offering psychological and medical support to all of our employees, and we took the decision of suspending trips or to maintain trips that are strictly necessary and urgent for the operation. We're preserving our cash. Simply to give you an idea, we ended the first quarter with BRL 4.2 billion, approximately 40% of the net revenues of the year 2019. In terms of the dividend payout, we made a decision at the extraordinary assembly to revert the decision that had been taken of paying out 100%. We were still unaware of which would be the impact of this pandemic on our activities, and what we are doing is preserving our cash. We have taken some financing from the BNDES for some of our subsidiaries because of the inability of offering resources to the controlling company.
We wanted to ensure that we would have resources because of our low profitability. Because of this, we have worked with the financing from BNDES. We have worked very selectively on this for the financing of the BNDES. We closed financing for Campo Largo and Gralha Azul, and we're in the process of obtaining greater funding that has been obtained for BNDES. We will be able to disclose greater details once the financing has materialized. Of course, we know that there have been more critical problems, and it's always important to think about financing. This is what we have decided to do to preserve our revenues to the utmost. On page number seven, we ended the quarter with the acquisition of Nova Estado Transmisora de Energia. It is for the transmission segment.
Once again, we're not proceeding at the speed that we expected because of all of the care and precaution that we are taking. We have had a problem with shortages in several regions because of this crisis. Now, you can see that we obtained a Fitch Ratings AAA for the long-term credit, and these international ratings were reaffirmed, respectively at BB and BBB, although with a revision in sovereign rating in April, downgraded in terms of a negative outlook. We already referred to our loan agreement with BNDES with a highlight for Gralha Azul transmission. We had a stoppage once again at one of our units. All of this due to the pandemic. The first impact was to massively test employees and third-party contractors in a region where tests were simply not available.
Now, the totality of our active cases of contamination were due to our work sites, of course. Once the employees were tested, they presented the virus. Of course, the contagion for others becomes a threat. This was a learning curve for us. What we are doing presently is to work much more closely with the health authorities, the public ministry, and have come to agreement so that we no longer need to completely stop our work. Capuaba Works will start its work again the beginning of next week with a more stringent protocol because that entire region has been affected. Those that were contaminated, we discovered this through our testing structure in May. The board has created an audit committee made up of three independent members, once again to have a better risk management and control and to carry out internal audits.
We're now going on to slide number 10. At the bottom right of the slide, you can see that we have included very important information, and we refer to some of the actions that we have in terms of our shareholding market this last year. In slide number 11, simply to show you where we are active, there is no relevant update here. On the next slide, number 12, once again, no modifications vis-à-vis the first quarter 2019 and no other relevant change in terms of our energy generation and installed capacity. When it comes to natural gas, we acquired TAG in June of last year. The international gas area of the group participated in this process. The results are being attained gradually thanks to this. As mentioned, we acquired natural gas, and this has given us a greater representation in this market.
We hope to be able to proceed very profitably. This is a process that has been underway since 2017. We were not able to achieve this. At present, we know that this is a highly competitive market, and we have decided to preserve our resources as we're working on a more complex activity. This is a process that happens more speedily, has greater complexity when it comes to structuring. What we are doing is being very careful in the definition. We are coming to a break-even point, and we're reassessing our commercial activities and our impact in this type of activity. The energy market on slide number 18. We, of course, already had a drop in the coming years, and this will become ever more critical because of the impact of COVID-19.
What we hope, of course, is to have a growth cycle in the market so that we can decrease this surplus. As you know, hydrology plays a very important role in this. This leads to the intermittency that you can see on these curves. We are going on to slide number 20 to show you our very diversified and balanced portfolio. This year, we have 40% in the regulated market, the rest in the free energy market. Because of the situation we are undergoing now in the regulated market, what we are striving for is respect to our contracts. In the free market, we are structuring contracts with warranty and very high levels of security. We are going on to slide number 21. An important characteristic that we have is not to have a concentration on a specific segment. We have a rather diversified portfolio.
This is very important in present-day times, especially because we have fluctuations in consumption. We are in agriculture and food, in pulp and paper. In the first quarter, we had growth in the pulp and paper when it comes to consumption, but we had a significant reduction in the automotive sector, more specifically with a significant reduction. Of course, this has been quite extensive. We go on to slide number 22. At the lower left, you can see that our portfolio is practically sold out until the year 2022. People will say sold. You have 12% or 15% of contracted energy here.
This is a theoretical capacity, and we have decided to set aside a sort of reserve to be able to manage this situation and the hydrological uncertainty that we have in the market until we have greater security and greater guarantee of what will happen. This is the work that we are doing presently. Because of this, we have made adjustments such as in pulp and paper. We go on to energy balance, which is an important tool that we use as modeling. This is simply to give you an idea when we do our accounts. In the last quarter, we sold about 130-140 average megawatts. Our sales activity in the first quarter was proceeding normally. Surprisingly, we have had quite a bit of search for this and were closing some important contracts in this post-pandemic situation. This should continue in the second semester.
There has been no change regarding the GDAO project. At some point in time, this project will increase our energy. We are now disclosing information to the market. We have had some problems with BNDES, but we continue to present this information because at some point in time, this project will continue on. What is important is that GDAO is a very large plant in the country. It had a record of generation now in January 2020, 60% above its guaranteed level. The operational potential of this plant is very high. It enables us to know that in the case of a transfer, we will be receiving an asset with an extremely good performance. We go on to slide number 27. The wind project under construction. The first machine was foreseen for 2020, and we are working, trying to adjust to this new environment.
This is why we have a delay here. Of course, we want to ensure that we have a good energy balance in case we have some sort of a restriction and to make sure that we will not have an impact on our SG&A. On slide number 28, the transmission line under construction, Gralha Azul transmission system. We are in a situation of readiness, as you can see. Perhaps you will not be able to notice this, but we have purchased quite a bit of equipment, and the worksite per se is doing very well. In terms of Novo Estado Transmissora de Energia, the project's installation license has already been issued by IBAMA, but we're proceeding somewhat more slowly than usual. It is just simply entering into operations in April 2022.
At the appropriate moment, of course, we are going to use this portfolio and adhere to our new capacity of development in the projects that have already been put in place. I would now like to give the floor to Marcelo to speak to us about our financial performance during this quarter. Good morning to all of you. On slide number 32, we show you our solid financial performance with a significant growth of net operating revenue, EBITDA, and net income. As you can observe, in the first quarter of 2020, we also had significant growth in net operating revenue and EBITDA and a reduction in the net income because of impacts in our financial result. These will be mentioned in a few moments. In slide number 33, the net operating revenue change. In the first graph, you can see the share in each of the quarters.
We have a very consistent distribution among the quarters. In the last quarter, we see a greater part in the fourth quarter due to the Electrical Energy Trade Board. In the graph below, you see the net operating revenue and the difference between quarters. We had an increase in our sales volume. This represents approximately 3.5% of evolution. This evolution is due to the coming into operation of Umburamba and Pampasul that happened at the end of 2019. On the other hand, we had a reduction in the consumption of distributors due to the use of that compensation mechanism of surplus and deficits, which reduced part of our sales volume to distributors. We had an impact of BRL 30 million in the average price of sales. We stood at 2.2%. Basically, this represents the evolution of inflation during the period, BRL 14 million in deficit.
This is the recognition of a fine for the availability of our wind assets in Trade-E. The BRL 35 million of impact on the Electrical Trading Board and a negative impact of BRL 35 million and a negative impact of BRL 16 million. This is because of the transactions with the Electrical Trade Board semester after semester. There are some factors that led to this reduction. The first is a significant increase in secondary energy in the first quarter of 2019 due to an allocation that Electrical Agents carried out during that period. As a counterpart, nevertheless, we also had significant exposure due to an allocation that the company carried out in that same quarter in 2020 and a significant effect of GSF and a long position that shows these effects partially.
Now, the positive effects of secondary energy and a negative GSF and the long and short differences in the first quarter ended up being offset partially at least. We also had an increase of our cost with the MRE mechanism. This happened mainly due to the significant reduction in generation in our plants in the south of the country, once again due to hydrological issues. As was mentioned, the South Region of the country in this first quarter went through a severe hydrological situation, a very difficult one, leading to a reduction in our cost with the MRE. Finally, we had a greater thermoelectric generation generating a positive impact. All of these factors that I have mentioned together had a negative impact of BRL 20 million in our EBITDA, BRL 16 million of negative impact in the remuneration of our financial assets.
This is because of the accounting standard 112 that was applied to the assets that were acquired and now to Miranda. The remuneration of the assets in this quarter was negative, mainly due to a reduction of inflation between the two quarters, BRL 43 million as a positive result in revenues. Nevertheless, in the cost, a negative impact of BRL 2 million and BRL 31 million positive impact. This is due to the positive impact in trading and mark-to-market of our contracts that were still open and that we had with the trading operation and a reduction of the short-term energy price in the first quarter of 2020. BRL 138 million increase in revenues thanks to transmission. Once again, we have applied the accounting standard. I think all of you know our CAPEX in the transmission assets.
On this cost, we apply a margin to come to our revenue. The cost was BRL 127 million. The net impact on our results was BRL 11 million positive, a reduction of BRL 2 million due to a market retraction that was observed during this quarter. On slide number 34, we show you the result of TAG that ended the first quarter with BRL 352 million, a very good result indeed. Our stake on this result was BRL 103 million as equity income in our consolidated results. This contributed directly to our EBITDA during this quarter. On slide number 35, the evolution of EBITDA in the first graph. We are showing you the evolution per quarter. Normally, we have a distribution behavior that is very comfortable among quarters. This is a non-recurrent result as happened in the third quarter of 2019.
We had the indemnification and insurance of Largo Sul because of a delay in the conclusion of the site of this asset. In the graph below, the evolution of EBITDA between quarters, once again, BRL 38 million—I'm sorry, BRL 88 million positive because of an increase in sales volume and average price. This was mentioned in the previous slide, BRL 21 million reduction in the cost of royalties because of the reduction of hydroelectric generation in the plants in the South Region of the country because of the critical hydrological situation. Once again, the impact of the fine mentioned previously, the cost of fuel.
Basically, this is the cost of coal of Pampasul that came into operation last year, an increase in the cost of third-party services and personnel because of the coming into operation of Pampasul and Umburamba throughout the year 2019, BRL 20 million impact in the Electrical Energy Trading Board that we have already mentioned, BRL 17 million for the coming into operation of Pampasul and Umburamba charges for use. This was also mentioned in the previous slide, the purchases of energy for the portfolio, an increase in our purchase of energy to be able to supply insufficient generation from Pampasul. This was mentioned previously by Eduardo Sattamini. We do not have full generation due to the impacts of the pandemic. On the other hand, we had a reduction in the short-term sales price.
The combination of these two factors led to this increase in the purchase of energy of BRL 12 million. We mentioned photovoltaic panels, transmission, and trading previously, an impact of BRL 31 million in trading. The equity income result with a very positive impact on our EBITDA for this quarter, as was mentioned by Mr. Sattamini. There were also impacts from generation on Pampasul. Were it not for this, our EBITDA would have grown significantly beyond what we are showing you here. On slide number 36, the net income change, a drop of 9.5% with an impact on EBITDA of BRL 119 million, which was mentioned previously, a reduction in income taxes and social contribution due mainly to the increase of this financial result and depreciation, reducing our cost and financial result with an expressive impact. There are two factors that will justify the net financial result.
First of all, the increase in our leverage for the quarter of more than BRL 3 billion. This leverage financed a significant part of the equity of the projects that are under development. Another factor, perhaps the most important one, were the interest rates over debt that were being capitalized for the debt that financed our equity. All of this was being capitalized until the entry into operation of the asset in June of last year. As was already mentioned, Pampa is still not generating its revenues fully. Of course, this has an impact. We do have the full financial structure of Pampasul in our results. On the other hand, we do not have the full revenues as part of our results.
What we expect is that in the coming quarters, this situation will improve once the revenues of Pampasul begin to come in, BRL 44 million in depreciation and amortization. Due to the depreciation of the assets in Pampasul that were mentioned, now the depreciation is a full depreciation once the project came into operation. As we do not have the full revenues from this asset, this also leads to fluctuations in depreciation. I think these are the two main components that would justify this reduction of 9.5% in our net income. On slide number 37, our very consistent financial indicators. They have remained consistent through time. In the first quarter of 2020, a small reduction on return on equity. This is due to the lower profitability during the quarter. On the other side, a reduction of return over invested capital due to the increase of our leverage.
In slide number 38, our debt and our indebtedness. You can see a significant evolution during the last few years, once again due to the investment in the diverse projects that have been acquired during this period. Now, despite the increase in our leverage, we are in a very comfortable situation. We ended the quarter with a net debt/EBITDA ratio of 3 times, I'm sorry, 2.1 times. We also observed a reduction in the operating cash flow over debt in 2017. This was 0.46. We observed a consistent reduction. We ended the quarter with a net debt of BRL 6 million. At the end of December, it was BRL 10 billion. In the first quarter of 2020, we closed at BRL 8 billion. On slide number 39, a change in our net debt and operating cash generation. We also had the payment of dividends, BRL 40 million during the period.
You can observe our investments, acquisitions, especially in Tampo Largo Sul and Gralazul, and the impact of accrued interest. These are the amounts that are linked to our results. They're not paid out, so they generate cash. The other variations truly are not very expressive in this graph. Our debt profile is on slide number 40, where we see a concentration of debts with a maturity in the next three years. Three-fourths of these debts are in the 4/3 modality that were contracted with an average term of three years. The emission of debentures and the amortization of contracts and financing with BNDES. We also see the composition of our debt, which is very balanced and pegged on the CDI and three other indicators that you can see in the graph to the right.
We also have a significant reduction in the nominal cost of our debt thanks to the contracting of debt at a much lower cost. On slide number 41, the evolution of our CAPEX. Here you can observe the expressive investments we have carried out throughout the years. The outlook is to have pertinent investments until the year 2021. What we are showing you are in Tampo Largo Sul and in the transmission projects, Novo Estado and Gralazul. Our dividend policy during the last three years, we were paying out 100% of our net income. In 2019, we had the approval of the assembly of paying out 90%, but very prudently, as was mentioned by Mr. Sattamini, we proposed a reduction in dividends to 57% to give us greater breadth to be able to face perhaps more critical impacts resulting from the pandemic.
The 57% that you see here corresponds to the income of the first quarter and interest on shareholders' capital. Now, with this reduction, we ended up retaining BRL 970 million. Basically, this is the presentation, and we are at your entire disposal for clarifications. Thank you, ladies and gentlemen. We will now go on to the question and answer session. Should you have a question, please press star one. If you would like to withdraw your question from the queue, press star two. Our first question comes from Gabriel Francisco from XP Investments. A good morning to all of you, and thank you very much for the call. I hope that you are all well. I have two questions. If you could please answer them for me. The first refers to your commercial activities with a free contracting market.
Once again, in your relationship with a free contracting market, if you could speak about the cases more specifically, what happened with the contracts for the supply of energy? Were adjustments necessary, and will this have an impact in the second semester going forward? If you could quantify them in any way. The second question refers to your management of capital, debt, investments, and your stake in the remaining part of PAG. What will happen with the capital in light of that potential disbursement that you will make? Of course, you have the right to acquire this, preferential right. This is Eduardo Sattamini. Thank you for the questions. In terms of the free contracting market clients, we did have a reduction of consumption. Of course, this has an impact on our flexibility on our negotiations with the clients.
In some of them, we have observed consumptions that are much below what was contracted. This will have an impact on revenue. This situation was more critical in April. In May, we observed an improvement. The situation was better. There will be an impact, but what we expect is that this impact will not be significant on our figures. We cannot give you much more information, but you will observe that in the second semester of this year, we will observe a gain, and there will not be a very large gap. Some of the clients, of course, have faced difficulties, and they have consumed below the lower limit of the contracts. In some timely cases, what we have understood is that we have a very good relationship with the client and that we need to make some adjustments, which is what we have done.
We have been able to do this, but with a large majority of the clients, we have reached an interesting agreement among the parties without causing any impact on either party. Of course, there are always those opportunists that are trying to gain benefits, advantages. With these, we have stuck more to our contract and to legal provisions. We have had a very good negotiation when it comes to renegotiating these contracts. When it comes to the management of cash and debt and the stake that we have in PAG, we had foreseen the possibility. Ever since we negotiated this with Pedro Brás, we have sufficient cash flow to be able to come up to our stake, which is 35%. Additionally, PAG itself also has the payout of dividends, and this should help the company once again to honor its payments, the payments that are still pending.
Now, the final decision stands with Pedro Brás, of course. They are responsible for the definition of this. I hope that this responds to your questions. No. Thank you very much. Yes. Thank you very much. The next question comes from Santander Bank. André, good morning. If you allow me, I have two questions. The first refers to GSF and what is happening at the legislative level. The second question, what is going to happen during the rest of the year if you could give us greater color of which could be the impact on the company in terms of spot prices and prices in general? The first question, which is easier, we are speaking about regulation and the hydrological risk, all of which compose the generation scaling factor.
Now, we did make a change, but in the final stage, we had to go back to our initial scenario. This is a very difficult agenda because of what is happening with COVID-19. It is our understanding that, yesterday, we had a sanitation framework that was adopted with a view towards attracting greater investments and recovery in the post-COVID phase, which is one of the great concerns of commercial activity. It is our understanding that this will reestablish regulatory confidence for investors that are very important for the electrical energy sector. I would like to remind you that the prices have been impacted in generation, transmission, and distribution. What is important is to reestablish regulatory security, and this will attract investors to the electrical sector that will make new investments in transmission and generation until the end of the year.
We want to make sure that this sector that is so important for the country can regain its investors and, of course, regain confidence. Of course, we have a great deal of maturity at present among the discussions in the Senate, and we think that very briefly there will be a solution that will implement it even during the COVID-19 period. Now, we have not observed any specific trends regarding your second question. At least we are not pointing towards any specific trend at this specific point in time. We have felt a very soft impact, and I have not heard about any trends regarding the impact. How to explain this question? It is an expectation of something that could happen. So far, we have not seen anything happening per se. Thank you for your response. The next question comes from Carolina Carnedo from Credit Suisse.
Good afternoon, and thank you for the call. I do have two questions referring to the market and commercialization. We observed that during this quarter, you signed significant contracts above 100 mega for the coming years, apparently maintaining good price levels. In the press, we have seen some announcements of new contracts being carried out in the free contracting market. These are small contracts that are pegged to the wind energy in the free market. Of course, you have a great deal of wind energy in some of the parks that you are constructing to take advantage of this demand from the free market. Now, which is the negotiation environment with COVID-19? Has anything changed? If you could speak about the commercialization, if there's something very specific or if you observe a greater appetite in terms of closing new contracts. Thank you for the question, Carol.
These new sales truly have occurred with non-conventional renewable sources, especially wind energy. Our vision is that this is taking place because we have a continuity of the migration in the market generating opportunities for new plants. We ourselves have Santiago Steno, and all of this is based on these contracts. Of course, this process will have to continue on. What is surprising for me personally is that we have seen a significantly higher demand in the second quarter vis-à-vis the first quarter. This does seem to be a trend. This trend arises from the migration. All of this is a concern that we have because the financial health of the sector, of course, depends on the financial health of everybody else involved in the chain. What will happen after the regulatory changes that we will observe?
The changes in the free market that have been discussed with ANEEL are important to ensure that we don't destructure the sector. We don't want to not honor the contracts, but we do know there will be an impact on the sector. We're following up on the regulatory part to ensure that we have a more liberal regulation, ever more liberal, so that we can eliminate the high number of restrictions. We look upon this sector with a bit of anxiety. Of course, they have taken away the obligation for distributors to work with energy. We have an environment which is ever more competitive with a supply of prices, and we need something more well-defined. Now, we're looking upon this with a positive view. There is a concern, nevertheless, in this market and its evolution.
This will arise with a regulation of the law that should appear in the coming two or three months. Of course, this is part of the regulatory activity for a sector that has critical importance and with the characteristics that we have among the regulators. Thank you very much for your answer. We would like to remind you that should you wish to pose a question, please press star one. Please wait while we pull our questions. Thank you. At this point, we would like to end the question and answer session. We return the floor to Mr. Eduardo Sattamini for his closing remarks. You may proceed, sir. I would like to thank you once again for your presence. We appreciate these opportunities for clarification. We have several questions from Carol, André, and several others.
We appreciate the fact that you were able to see a very full presentation that did not generate doubts. We hope to see you in the coming quarter with greater clarification that we can understand this very uncommon year as it unfolds. Thank you very much. The ENGIE Brasil Energia conference call ends here. We would like to thank all of you for your participation. Have a good afternoon, and thank you for using Voytel.