Good morning. At this time, we would like to welcome you to ENGIE Brasil Energia's conference to discuss the results of the third quarter 2018. All participants are connected as listeners only, and later we will open the question and answer session when further instructions will be given for your participation. Should you require the help of an operator during the conference call, please press star zero. We would like to remind you that this conference is being recorded. This presentation, followed by slides, will be simultaneously transmitted through the internet to www.engieenergia.com.br in the investor section. There you will also be able to read the presentation and the company's earnings release.
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 condition, on the performance and regulation of the electric sector, besides other variables. They are therefore subject to changes. With us today are Mr. Eduardo Sattamini, the CEO of ENGIE Brasil Energia, Carlos Freitas, Financial and Investor Relations Officer, and Rafael Bósio, Investor Relations Manager, who will talk about the company's performance in the third quarter 2018. Soon this we will have the question and answer session. We would like to remind journalists who wish to ask questions to do so by email, sending them to the company's press office. It is now my pleasure to turn the call over to Mr. Eduardo Sattamini. You may proceed, sir. A good morning to all of you.
It is a pleasure to share our good results with you. We are going to begin on slide number five with the main financial and operational indices. During the quarter, we had a net operating revenue 50.4% higher because of our short-term operation. Obviously, this is due to our installed capacity. We have Miranda and others that have already begun to work with wind farms, also contributing to the net operating revenue. As a result, we had a significant increase in EBITDA with 43% higher vis-à-vis the previous semester and better EBITDA margin by a drop vis-à-vis the same quarter in 2017. In the semester 2017 and 2018, what we have been doing is to have that short-term recovery. We have a long position, and because of this, we end up doing short-term actions with positive actions, but we are subject to the default in the energy market.
We had a significant increase in our leverage during the comparing the third quarter of 2017- 2018. We increased our net debt more than four times due to our activities and due to the increase of investments that we are making. All of this, evidently, had an impact on our interest rate, and it reflects a growth for the period that is higher than the EBITDA. We are going to go on to slide number six with the main highlights for the quarter. The company is commemorating in September 20 years of privatization, and we are now called ENGIE Brasil Energia. We had the operations for the acquisition of the remaining shares of ENGIE Geração Solar Distribuída, which means that we have greater freedom to have a more robust growth and to accelerate the pace. This is, of course, a way to have more satisfactory clients.
We have six wind plants in the Campo Largo wind complex that began their commercial operation during this quarter. In the month of October, we have eight of these wind plants in operation, and we have others with assisted operation, not commercial operation, but assisted operation. The plants from Campo Largo have been completed, and of course, we're working with constant financing. This is something recurrent in wind energy, and we have made significant investments here. There should be a barrier of entrance for the small ones in the market. We also had a partial drawdown of the National Economic and Social Development Bank. In the next slide, slide number seven, we continue with our highlights. We have concluded the work of streamlining the digital control system for Machadinho Hydroelectric Power Plant.
For the ninth time, we have been awarded with a transparency trophy organized by an Ifacci, Pecassi, and Serrada experience. This thanks to our accountability indicators. We are a very transparent company that, of course, highly awards efficiently, and we approved a credit on interest on shareholders' equity in the amount of BRL 397 million of the intermediate dividends that will be paid on January 4th and November 13th in 2018. We now go on to the next slide that refers to ENGIE Brasil Energia's shareholding structure, and of course, this is the structure that includes several companies, the holding companies, specific companies where we are making financing or other systems that are connected to the national system. In the next slide, the only change that we have refers to the increased capacity because of the wind farms that have entered into operation.
Of course, here you have our installed part and the plants that have already been completed and that are part of our portfolio. In the next slide, number 10, we are showing you our leadership in the market with 10.2 installed capacity for energy. We show you Umburanas, Pampa, and, of course, the Campo Largo complex that will be coming into operation between now and the end of 2019. All of this enables us to have a very open dialogue with all of you and the possibility of continuing to make the most of market opportunities in terms of transmission. We're continuing on with our normal projects. We do have a project that is part of our budget in the short term. It is an energy line in Paraná.
In the next slide, you will observe a very diversified portfolio where we have 47% destined to the free contracting market, 10% to traders and distributors. In the short term, we have been selling more to traders because of the operations that we began in 2018. Of course, this was part of our activity to focus more on the market prices, and of course, this has enabled us to work with a better arbitrage and prices in the short term. Thanks to our diversification, and as you can see, this is considerable diversification among several segments of industry and trade. Perhaps the most representative is the food sector, and despite this, we still have a very low contracted energy. We have 10 MW in the free market. There are variations semester after semester because this depends on the consumption of different industries.
We do have some contracts that enable us to grant some flexibility, and of course, this has an impact on our sales, and we may have movements towards a decrease of activity. What we are representing here is our average sales activity. From the last quarter to this one, we have had a slight reduction of 210 MW, I believe. We go on to the next slide, which is the energy market. We are on slide number 15. This is our structural offer, and the prices during 2018 have been under pressure because of the energy crisis that we have had for many years already. In the month of October, we had a surge in spike, and this has enabled us of activity. Once again, we have had the greater presence of thermoelectric and hydroelectric on a river plant.
In the next slide, we speak about our commercial strategy. We work with commercial strategies that are well distributed through time. This eliminates the impact of having a lack of energy through time. One of our characteristics is to practice price variation. We do have increases and drops of prices, of course, but they are not very strong. To the left of the graph, we show you the uncontracted energy. As you can see, this year we are at 10.7, and we show you the increases through the coming years. We do have a reserve volume to be able to deal with the hydrological risk. You will then see the energy that we have for trading through that new contract that we have achieved or renewed. In the next slide, we refer to our energy balance as of September 30th.
There are no great highlights here, perhaps except to refer to the net volume of prices. We have not attached this to say, "League," we refer to the average price of selling and purchasing at the bottom of the table. We now have increased the amount of information so that you can have a basis of comparison. In the next slide, we would like to refer to our extension. We're referring to GDAO that is still on a holding situation. If that was going to evaluate the transfer, but so far we have not received any news on the advance of this process. Once again, we have a postponed decision on this. While we await more information, we go on to the slide referring to Pampa Sul, where we have tested our main system.
Despite the delay that we have in this construction work, we already have a term for operation that has been set for the beginning of 2019. We are focusing on the regulated market, which is not shown here. Now, the quality of our work and the systems that we have tested have been highly satisfactory. Evidently, this will have an impact on the profitability of this asset, but this asset did have good initial profitability. I'm going to give the floor to Carlos because I do have a very sore throat, and I will come back during the question and answer session. Good morning to all of you, and thank you. Eduardo Sattamini, I will continue now on page 23, referring to the Campo Largo Wind Complex. As we have already mentioned, we have six wind farms that are in commercial operation.
Yesterday, two additional wind farms came into operation. We're simply awaiting the release, and until mid-December, we will have the entire complex operating 300 and some megawatts in Bahia. This is our wind farm hub. Besides Umburanas , this is operating very well. As you can see here, it is still operating below capacity and has come into commercial operation before the term expected. We're simply waiting for the company to execute all of the projects. Something very similar takes place on page 24 with Umbaranas ' Wind Complex. We have made the strides in the construction. The idea is to have two parts that will come into operation at the end of November, end of December. Until the second quarter of 2019, we will have an additional 360 MW of wind farms offering more eolics or wind energy to the company.
We go on to page 25 for Gralha Azul. This is a project where we are still in the phase of environmental analysis, and we're preparing the RIMA, which is the approval. We're still mapping out the land and beginning to negotiate the contracts with a CapEx value of BRL 1.7 billion, which means approximately 15% below the CapEx of annual that was approved in December of 2017. At ENGIE Geração Solar Distribuída, we have had a growth compared to the previous quarter. The trend is to have somewhat greater, larger systems. This is still a very small business in Brazil, evidently, but it is a market niche and a new sales channel that will enable us to continue to have commercial growth. Of course, as ENGIE, this will fulfill the free market that is still not being serviced.
To speak of growth, we go on to page 27, where we show you the projects under development. As you can see here, we're still closing contracts, and we continue to sell energy through PPA for the long term. What we're trying to do is to begin to enter this market. We remind you that Campo Largo and Umburanas, on average, have been contracted in two-thirds for the free contracting market. Of course, we continue to close business in this sector, and we have a significant volume of PPA, and we will be making new investments in Campo Largo as well as in Umburanas. We hope to give you further news very soon. We now go on to the financial performance of the company. We're on page 30, where we refer to the net operating revenue changes with a growth of 50%.
These are the third quarter of 2017. Basically, this year, because of the speed of training and because of the speed of sales and the trading operations, we have reached BRL 466 million additionally at the Electrical Energy Trading Board as well as in other areas. Once again, this compared to the year 2017. This, of course, besides the higher sales price that has predominated this year and an increase in sales. The revenues of Jaguara and Miranda that give us revenues month after month, what you see here are only 70% of what we could get from Jaguara and Miranda, BRL 430 million per year approximately. The 30% of Jaguara and Miranda in the free contracting market are here as well. When it comes to our EBITDA, we have had a significant change.
Besides the contribution and the increase of sales prices, the net balance of the short-term market that was BRL 188 million, we have also had an increase in sales volume and a minor saving when it comes to the cost for permits and material. Of course, everything that is just into piece cocaine and a lower cost of materials. Now, given the increase in fuels in the thermoelectric market, which is positive because this is simply a short-term impact and an increase in sales and sales to trading companies, giving us an increase of almost BRL 400 million and purchases of energy for trading and for our portfolio as a whole. Although the first quarter was quite complicated in hydrological terms, we did have an EBITDA performance that is higher than BRL 1 billion, BRL 1.20.
When it comes to our net income, we do have a very important highlight in our financial results, a net expense of almost BRL 15 million. First, due to the increase of our debt, this is very obvious, of course. We have announced 100% of the purchase of Miranda with debt, and we have carried out drawdowns from the BNDES for Campo Largo and Pampa during this quarter. This represents BRL 1,080,000,000 geared towards projects. Of course, there have been changes here, but this was not the main reason. The main reason was that throughout the year, we had a significant increase. We have concessions to pay for thermoelectric plants like Cana Brava and others that are indexed to inflation. In the case of Campo Largo and Cana Brava, they are indexed to the IGP-M. They represent BRL 12,800,000,000 .
For the accumulated for the year until 10%, we had to pay 10%, I believe. For the approved figures for last year, they were negative. What you can see here clearly is the greater impact of inflation. In my opinion, the coming year, we will have an increase in the prices of PPA because a large part of our contracts are indexed to the general price index of the IGP-M. We go on to page 33, and you can see that we have a good return on the capital indexes and return on equity. We have a very strong financial situation, and we continue to look for projects that may be attractive for the company. As I mentioned, on the next page, we have an increase in our debt. We reached 2.3 of net upgross debt still at a very comfortable level for us.
Considering our EBITDA, we do have a competitive edge in the company. We can continue to increase the company debt, and it will continue to increase always based on our growth. We have very good projects in our pipeline, and we are going to achieve a large part of our growth through this debt, of course, always on a very sound basis. This debt is on page 36. It is not causing any pressure on our cash, and we obtain it at a very attractive cost and always in hand and not pegged to the dollar, which gives us a great deal of tranquility. I would say a certain strength in terms of credit. We are able to obtain it quickly and at a low price. On page 37, we refer to our CapEx.
We still have significant volumes of CapEx in Umburanas, Pampa, and Campo Largo for 2019. We're going to reach BRL 1.3 billion. For Pampa transmission and Umburanas, and the main CapEx, once again, will help us in the environmental part and in the part that refers to land. Most of our CapEx will be spent in the year 2020, as you can see on the chart. On page 38, our dividend payout, we announced a payout on the first semester, and yesterday as well, we announced interest on our own on shareholders' equity at the price of one half per share, BRL 15 million approximately.
We have already announced for this year a payout in dividends, and this enables us to maintain a very interesting policy in the payout of dividends besides the growth that we have in the country, significant contractor growth with Umburanas and others. We see some room to continue to do this. This is not a promise that we're making. Once again, we do not have the intention of accumulating cash or keeping cash under the bank. We're spending our CapEx on projects, but also maintaining our dividend payout policy. With this, I would like to conclude the presentation, and we open the floor for questions.
Ladies and gentlemen, we will now go on to the question and answer session. If you wish to pose a question, please press star one. To withdraw your question from the queue, press star two. Our first question comes from Mr.
Vasconcelos from Safran. Thank you. May proceed.
All right. Good morning to all of you. Thank you for the call. I have two questions. The first, if you could speak more about Pampa's tools that will go into operation in the second quarter of 2019. How many turbines for each phase? When will they come into operation? How long will you carry out tests until the commercial operation? My second question refers to slide 27, where you mentioned your project portfolio with the last phases of Umburanas and Campo Largo that will be coming into operation until the beginning of 2019. Which is your project? Are you going to work in the free contracting market, the non-regulated market, long-term contracts? What is it that you are thinking of for these?
The first question refers to Pampa's tools.
We have 300 MW of installed capacity, and the idea is to begin operation already in January of 2019. Once again, we're undergoing test operation, but the intention is to begin operation approximately in the second quarter. The process for the sale of the assets, we took the decision of incorporating it again. We, of course, still are ridden with uncertainty, but we're quite confident in terms of the quality of this farm. In a pair of months, the situation will be much better so that we can give the buyer the certainty that this asset will be fully operational. When it comes to our growth in terms of renewable energy, as we're developing Campo Largo phase two for the free contracting market, we're going to begin contracting suppliers and consultants and much more.
We will have a new installed capacity, and of course, we will work with long-term contracts. We are very optimistic that we will be able to make the decision for the beginning of construction until the end of this year. We are at the end of negotiation of a new area very close to Umburanas and Campo Largo, and evidently, we are going to look for satisfactory profitability conditions. We are not going to enter the regulated market if they do not allow us to have the profitability conditions that we expect. Now, we are going to keep working in the free regulated and the free contracting environment if the regulated market is low. Now, you have six months more of operation. I am sorry, I did not hear the name of the plant.
It is very probable that we will intensify the process for sale, and of course, everything will depend on how much time we need for the evaluation and much more. It could be that the closing will take place only in 2020. We already have some interested parties, and we have decided to take on the construction risks until the end to do away with all of these discrepancies. All interested parties have to do is place an offer. If we can do the closing before, we will do this in 2019. Being very conservative, I can say that until 2020, we can conclude the sale of this asset.
Thank you very much, Sattamini, for your response.
Our next question is from Andre Sampaio from Santander . Thank you. May proceed, sir.
Good morning, and I would like to ask a question about the future transmission options, which are your expectations in this field. Another question on GSF, the generation scaling factor. What do you expect from the discussion that is being held in the Congress? If you believe that this will be approved this year, or if you will have problems if it is denied or turned down.
The transmission option, which was the first question, we're expecting that we will increase our investment based on what was carried out in the auction. We will have another auction in December. This is an auction that will pose good investment opportunities. It will allow us the opportunity to compete. As you know, we're very aware investors. They carry out their calculations, and they offer an amount that will be compatible with the return of the project.
We will be there, of course, because we're interested, and we are going to participate to be competitive. We're already working towards this. We do have some specific interests, and what we want to do is decrease the level of contingency and uncertainty. GSF, the generation scaling factor. They were talking about fines for energy, but there will be a new amendment that will be sent to Congress. We understand this as being a signal that this was not voted because it was part of a document that refers to privatization that was not the right moment. This was during the first round of elections, and I think that what we have gotten to is a consensus from new measures were set forth to be able to resolve this situation, to perhaps focus on the short-term market.
We think that there's a good opportunity that we will be able to get to a consensus quickly among the House of Representatives. Now, Aniello is looking. We're trying to resolve the exposure of the hydrological risk, and I think that this will end up being a novelty, something that will give greater stability to the energy market in the future. Thank you very much. Simply to complement this, the new item that was included in the PC for fines, the fact that it was rejected as part of the tech for distributors, if this could lead to a legal impediment of including it with a very similar opinion within this new project.
I'm not an expert in this type of process, but my perception is that Senator Fernando Gabeira is not betting on this, and there must be a legal basis to be able to proceed, as you explained.
Thank you very much.
Our next question is from Mr. Marcelo Sá from UBS. You may proceed, Mr. Satt.
Good morning. I have a question on the resolution of GSF. The discussion, I believe, will be according to the same format as was described in the PC. If this is the case, a comment or some news has come up that the government would have to pay BRL 4 billion of the SELIC to the plants that have already been returned. If you can, comment on how the solution would work out.
Another question that refers to using your reserve volume, it would not make very much sense as the cost of reserve would be of BRL 20, and it would make more sense to buy with a hedging in the market. Who would the company end up losing, losing because of this? They would gain something on the price. Would it not make more sense for each market to buy based on hedging?
You have mixed several topics here. The first thing is that the solution for the GSF is, it contains the same reason. It is to release these accounts now and to recover them going forward. Regarding that specific article for those plants that had their concessions retained, they will no longer be included in this new amendment. This is what is different compared to the previous PC.
Now, which were your other questions in terms of the Aniello solution? You're right. Now, this discussion is still underway, and we agree that to protect yourself, though, hedging will end up being cheaper. Using our own energy, our reserve volumes, our own capacity, this, of course, will be cheaper. Once again, this discussion is underway, and there was an invitation to present a counterproposal that will have the same content, but of course, will end up being an advantage to the market as a whole. Once again, this is a discussion that is underway, and we can see that Aniello is concerned in finding solutions for these risks, risks that go beyond the normal operation risk of the hydroelectric plant.
Thank you very much. A large amount would have to be disbursed or fined by the person who is entitled to receive this credit.
Would this be fines offered by the consumer if this would have an impact?
We're not thinking of this discussion because all of our accounts are up to date. I think that most of the companies do have resources in cash. They would have no problem in raising money for these payments. I do believe that this will be analyzed case by case, and the government does have a favorable position, and it is attempting to help these companies to fulfill their obligations. As far as I know, there is nothing in the discussion that refers to a generalized action, and I think this will be dealt with case by case. In your case, as you said, you have no pending accounts.
Do you understand that for ENGIE, this part that refers to the free contracting market would also be entitled to this concession, or would this apply only to those companies that have ordinances? I think that we have gone beyond this discussion. While we're talking about the free contracting environment, and for those companies that have made an agreement, there will be a different treatment. One of the points that we discussed in the past was this one, and the amendment to the PEC that was presented recently already dealt with this issue in what fashion. Thank you very much. Thank you for your response. Our next question comes from [audio distortion] . May proceed, sir. Good morning, and thank you for taking my question. Recently, there was a report that ENGIE is studying projects to store gas in Brazil in the Northeast.
I would like to know if ENGIE Brasil Energia would participate in these projects or if this would be restricted to the parent company. We do have a project that is under analysis. This is true. It is in São Francisco do Sul. This, along with a company that operates a storage facility as an anchor for one of our plants that is in Guadalupe. This is what is in our pipeline, and perhaps there would be a cross-participation, we at the terminal and them at our plant. Now, ENGIE Brasil is going to work with terminal operators and storage operators. If it makes sense for us, we still have to assess this in the market. Of course, we would do this through ENGIE Brasil Energia, and perhaps ENGIE will enter this market directly.
ENGIE might make the decision to work with this either inside the company or externally. I do not know if this is a response to your question. Yes, you did. Thank you. I will give you a follow-up. For this project to go forward, we would have to have an auction, and in that case, you would enter, and the entire project would then be developed. Unless we have a sale in the regulated market, it does not make sense to work with a free contracting market. We would not have competitiveness, and we need to have the capacity to maintain this and for it to be feasible and viable. Thank you. We would like to remind you that should you wish to pose a question, please press star one. Once again, should anyone wish to pose a question, please press star one. Our next question is from Mr.
Marcelo Sá from UBS. Thank you, Mr. Sá. Thank you for taking another question of mine. I would like to know if you have a forecast of when they're going to judge the ordinance of Lewandowski, if this refers to this year or the coming year. The consortia that you have created with the fund apparently offered a proposal. What I understood from the article is that the other competitors also have the possibility of winning this, but that you would have the right of preference. If I could understand what your reading is and what is happening with this ordinance now, this process is a process that was won by Pedro Braz, where the preferential grantor has the right to negotiate the terms, the term of validity, and of course, the amounts to be paid.
Once this is done, the conditions will be presented to all of the other offers, and this will be discussed once again with the preferential buyers. It is in the hands of Pedro Braz to ensure that this process goes forward in the coming months, and we are not sure when this will take place, if there will be a legal action or not. Once again, we are not sure when this issue of the injunction will be resumed, but as far as I know, the contractual conditions are well advanced, and then there would be a deadline to present this to all of the other competing offers, and this should lead us to having a transaction now before February or March of 2019. Once again, if we are able to resume this discussion in the month of November, Carlos, would you like to add anything?
When this discussion is resumed, it will take at least three months until this is discussed at the extraordinary general assembly. Here is why we need to hold this extraordinary general assembly, and when it comes to the amounts, the partners, and so on, this has not been defined. We truly have nothing to say and will not be able to say anything now. The size of Saudi is impressive. They had an EBITDA of BRL 4,000. Now, in our group of companies, the idea is for nobody to control anything. We're not going to have the position of a controller. We're going to all consolidate investments. This is all that we can say for the time being. If you could dissipate one of my doubts of this company would draw attention, and of course, the whole situation with Pedro Braz has not been made very clear.
Now, the contracts that they have with the gas lines are different contracts with different prices and with very different capacities. As far as I know, there is not a single line in terms of how this contract will be made, and there are great uncertainties about the company's EBITDA in the future. Now, if eventually you will come into this or Pedro Braz, will there be a very clear line in terms of how all of this will be renewed, or will this be defined going forward? There are several contracts for the transportation of gas. We have a very short one that expires now that is not considerable. There is another medium and long-term contract. Perhaps the shortest one expires in 2025. They are all based on fixed prices, based on gas volumes. These are old contracts made up for Pedro Braz.
Nowadays, they're being handled in-house, but they already have a legal framework for their renewal and for any future business because this is a regulated business. ENGIE will define how this process will be carried out. There will be a discussion on the WACC, and this discussion is already underway. At the GLC, we're discussing this. It brings in gas from Bolivia, and there are eight contracts at GLC that expire at the end of 2019, which means that throughout 2019, there will be a regulatory process to redefine what is happening with GLC, and there already is a public hearing to be able to do this. Now, if you compare this with electrical energy, where we know what the WACC is, there is an economic logic that prevails.
This is something that will be contracted only in seven years, but the regulatory framework has already been clearly defined. Who would do the regulation? This is one of the questions. The other question is, looking forward by doing some simulations of the WACC and the amount of the assets under discussion, if you see the possibility of downsizing the average cost of the contract, or if it would be more similar with what you normally do, simply a reference for us during the renewal of contracts. The regulator is ENGIE, and we have a very conservative way, our own way of evaluating contracts. I can't share with you how we do this, how we increase prices or not, but I would say that this is something that pertains to the controller and the company.
Now, look at the regulatory log of GLC, how it was put together. This will give you an idea of how we're going to model all of this. Thank you very much. Once again, should you wish to pose a question, please press star one. At this moment, we would like to end the question and answer session. I will return the floor to Mr. Eduardo Sattamini and Carlos Freitas for the closing remarks. You may proceed. I would like to thank all of you for your participation. Thank you for your questions that have enabled us to clarify our operations and the main projects that we are involved in. I would like to remind you that at the end of the year, we hope to have some novelty for you. Thank you very much.
The ENGIE Brasil Energia Conference, and here, we would like to thank all of you for your participation. Have a good day, and thank you for using [audio distortion] .