Good morning, ladies and gentlemen. We'd like to welcome you to the conference call of Energies Xi Zecha concerning the acquisition of the shareholder control of Ciron and Le Trocri. The participants will be in the listen mode only during management and in English through simultaneous translation. Before proceeding, we'd like to clarify that any declarations that may be made during this conference call concerning the business perspectives of the company, projections and also goals are based on beliefs and assumptions of the Board of Energies and also based on information currently available to the company. Future considerations are not guarantees of performance.
They involve really risks. So they refer to future events and therefore depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and factors may affect the future results of the company and may lead to results that will differ materially from those expressed in these future considerations. Now I'd like to pass the floor to Mr. Mauricio Motelho, who will begin the presentation.
Sir, you have the floor. Good morning to all. I would like to thank you all for CEPISA Eletroacry. We have with us Ricardo Boteleu, Chairman of Energiza Jorel D'Souza, Vice President of Distribution Alexandre Norgeira, Vice President of Regulation and Institutional Relations Claudio Brendon, Controllership and Finance Mariana Rocha, Manager of Investor Relations. We will show some slides and then we will have the Q and A session.
Please, let's go on to Slide number 3. In the auction that happened yesterday, Energiza offered a discount price of 21% for Saron and a lower price discount 31% for electro Agri. As you can see on the table, the regulatory PMSO with the prices for the auction were $293,000,000 for Cerroian. With our discount, it went down to $3,000,000 $10,000,000 lower than the parameters of the auction and $20,000,000 discount in relation to the PMSO done in 2017. The same applies to Eletroancri.
The price had been defined at $128,000,000 a little above the PMSO made in 2017. With this discount, it also resulted in a reduction in low tension markets, which are above the limit established by the regulatory agency, Renal. The discounts is also applied on the financing of RGR, which is passed on to the tariffs, adding the 2 distribution companies in Ergiza well gave up passing through the tariff of $160,000,000 in RGR. So with these loans and 5 years to begin paying until the end of the concession with annual interest rate of 5% plus administration fee of 1%. These discounts in the auction will represent a reduction in the tariff for the amount of 2% and for CERO 3%.
Here, we here we have the details. Cerro has 623,000 clients in 52 cities, a market of approximately 3 gigawatt hours. It becomes the 5th largest distribution $1,300,000,000 Eletua agreed 263,000 clients and reached 1,000 gigawatt hours in the market in 2017. An important point to stress is that both concessions are eligible for the tax benefits of SUDAM in the Amazon. And as we did with Groupe already right after signing the contract of the concession, we will request this benefit.
Now we'd like to go on to Slide number 5. Here, here. We have here the situation of Energies that after these acquisitions, we will be serving 8 62 cities, representing approximately 25 percent of the Brazilian territory and a population of 20,000,000 percent. And in terms of assets, BRR, if we add up these values, as already mentioned, we would have $10,900,000,000 in BRR, a growth of 19%. Now let's go on to the next slide.
Here we have a slide showing in more detail the concessions in the state of Aclia and state of Rontonia. These regions have a concentration of clients similar to EMT and ETO. And we see, in the case of Aque, we see a greater concentration of clients and networks in the region close to the border with Rondonia. In the Camterio Branco, we have around 50% clients of the distribution company. And here, above the region of Criseirodoso, we see a concentration of clients representing 12% of the total.
As I said in the case of Aque, the greatest concentration is close to Rio Branco. This is the capital of the city. 50% of the clients are in this region. And here to the 5% of the load. So it's relatively simple concession to concentrations.
Now in the state of Rondonia, onethree of the load is in Porto value, the capital. Both systems have what we call isolated systems, and these will be eliminated as time goes by. The proximity of these two states in relation to Mato Grosso, the state of Rondono, We have significant synergies due to the proximity. So please, let's go on to the next slide, talking about the dynamics of the economy of the state, you can see on the graph on the left, the GDP of the concessions, higher than the in relation to the country, the graph on the right, we see the growth of the market. These concessions had a growth of 6.4%.
These concessions grew at a rate of 6.4% and 6.9% in the last 10 years, 4 percentage points above Brazil in general. And also a comparison here with AMP. In the case of Seron, the state of Rondonia is a frontier region where agriculture is growing, producing soybean and also corn and other grains. It has the 5th corn and other grains. It has the 5th largest concentration of cattle in the country and recently, it increased also the creation of pork and hogs.
Here in Agri, we have 2 economic regions here, Cusheiros Sul being the main one and the Valley, this will allow an easier connection. And for the time we have BR 3 64, it is a highway that suffers with a lot of floods during some times of the year. Now the next slide, please. Market profile. There is of residential clients.
We see here in the case of the state of Arakji, 45.3% and in Cerrone, 40.4%. Here at the bottom, the slide at the bottom, we see here the consumption average. Consumption very similar to Mato Grosso. We see here 221 gigawatt hours per month and 169 in the other. I believe it's worthwhile stressing that there is demand because of lack of investments.
With investments, with investments, demand will increase a lot. We have here, as I mentioned before, 19 of the 35 isolated of these concessions will be eliminated by 2020, resulting in the possibility of increasing the load in the medium term and also an improvement in the quality and loss indicators. Please, let's go on to the next to reduce losses in these concessions, which are above their regulatory levels. Looking at the left, on the left, in the the of Mato Grosso, near 20%. We have a potential for reduction of 585 gigawatt hours of losses and the growth could bring the elimination of these losses could bring an increase.
Here, reduction of losses in ACRE, 96 gigawatt hours market growth, 64 gigawatt hours. On the next slide, let's talk about quality. As you can see, all the concessions are here with their capacity to improve indicators of debt. In fact, we made a comparison with Martugos since our acquisition. We made the acquisition in April 2014.
And you can see that we had important evolutions in Mato Grosso and Tocantins in these two states. In this type of with this type of benefit, we should have the same benefits in these two new concessions. We are working here in Grupo Redi. Now the next slide, please. On regulatory base, first point that I would like to highlight is the great difference here on the left of the graph in orange, which is the asset base and what is in the accounting in the books in the case of Cerrion, dollars 372,000,000 at current tariff base and the potential to get to this value here, here, EUR1.275 In the case of Eletro Agri, we have here almost twice.
And this is the potential for growth. So we will work to have an immediate tariff review in these concessions in 2019 to try to capture these investments in the case of Cerro, a relevant amount invested in 20 17, 'eighteen, and they have $500,000,000 to 0 in their asset base. Now we would like to go on to the next slide on debt. We will show here the indebtedness of before and after the acquisition. Right now, Ciron has debts discounted from the cash position of $1,100,000,000 Eletro Aqris, dollars 736,000,000 We're discounting from these debts the RGR of the company's making an adjustment to present value of this debt that will be passed on.
Here on the right side of the slide, we see what will be taken on by the responsibility of retrobras, dollars 5 point €5,700,000,000 by Sarong. And we have an increase in capital, EUR 1,800,000,000 Eletrobras, accounts receivable here. In Acre, Eletrobras will have this part, BRL295,000,000 in debts to be assumed by in terms of debt, we have 3x net debt EBITDA, and we will be close to 3x, 3.5x the EBITDA. In this way, with the pro form a covenants after the acquisition, our debt will be 3.5x net debt EBITDA. We today, there are levels of 4x EBITDA.
So we will manage this debt. Now the next slide. We'd like to talk about suppliers with debts to suppliers, past due debts. We have some here. We have already had a similar situation in the past.
So it is something that we have managed before. Here, we have the increase, the mandatory increase in capital, dollars 238,800,000 and in Surround, dollars 253,800,000 In the case of Akeri, the state of Akeri, this increase in capital is more than enough to pay off the suppliers. In the case of Cerrone, we have here the debts. This will be reduced by the mandatory increase in capital. In the case of CIROM, dollars 23,000,000 Now the next slide contingencies.
One of the concerns that we had in this process from the beginning of the discussions in 20 sixteen-seventeen, the levels of contingencies outside the year end balance. During this process, we made adjustments. In the case of Eletro Aci, contingency was €14,000,000 Today, we have a total level of €144,000,000 and we have this evolution, including taxes in Syron in the last quarter, they made a relevant agreement with the water company in the States, water resources company, The water resources company gave a reduction in helping the tax debts of Cerrone. Here, C623 500,000 in accruals or provisions. And also contingencies were recorded for the amount of $885,000,000 of which $351,000,000 were linked to credits from the water resource company.
So adding the total debts already mentioned, the contingencies on the lower slide and the outstanding debts with vendors already considering $22,000,000 which were recorded in Q2 'eighteen. Going on to conclusions. We have here markets that have a great potential for growth, great growth potential. Agriculture is expanding, especially in Seron. We have an expansion in agriculture and investments we will make.
We will have loads. There are investments will be made to increase the demand that already exists apart from concerning synergies, apart from operational synergies that we have because it is close to Mato Grosso, also shared services will be used. And this will help us also to grow as a company. We can improve a lot the conditions of these concessions. We can improve the quality for consumers and also a great potential to reduce losses.
We have very successful states. We have the Grupo Redidu. These are we have very efficient and balanced concessions. Our team is well prepared for this challenge, aligned with the company's culture, and we want definitely to grow more and more. I'd like to conclude the presentation, and I would like to begin the Q and A session.
The next slides talk about the next steps. And thus, we should end this process. We should conclude this We'd like to begin the Q and A session. Mr. Thiago Silva from Santander would like to ask a question.
Good morning. Thank you for the call. Congratulations. I have 2 questions. The regulatory level for losses?
The second question, the auction. I understood. Aker in the state of Aker, you could use you could participate in the auction of another asset. Is that correct? Answering the question, in terms of reaching the regulatory level of losses.
You can see the example of Grupo Reytti. In 4 years, we brought all the companies to the right quality levels and also the correct loss levels. So we understand we can do the same in Akeri and also in Rondonia. Now concerning the live bidding, those who acquire Aki have the right to an option to choose which kind of auction can be used, either as long as you have a valid proposal, you can also bid with voice. This Our next question comes from Ms.
Maria Carolina, Carneil from Credit Suisse. I'd like to understand the strategy. You said that you would have no interest in participating in future auctions. So now this with this option of VeloTruacry, do you continue not having intentions to go after other assets? Or you may eventually go after other assets in future auctions, including one in the Amazon and the state of Alagoas?
The second question, the law that is being voted and will have a greater impact on Amazon includes some items that could impact the concessions that you just acquired. So if this new law is approved, would the benefits apply to the past? I will divide the answer. The first question, Ricardo Botelho will answer. And then concerning the law, Alexandre will answer.
Good morning, Carolina. This question about our interest in participating in future auctions. We declare that we will not participate in the auction for the state of the Amazon Amazonas. And so we have we also made an announcement. We haven't decided yet about the second one.
The second question, truly this law applies directly to the Amazon. Some points could affect the state of Akera and Rondonia. We didn't consider this in our valuation. We're following the scenario, and we're monitoring this. Our next question comes from Mr.
Marcelo Brito from Citibank. Good morning. Mauricio Riccardo, can you give more details about the turnaround process? There is a timing, as you said, in 4 years, you brought the other companies to a good operational level. In Acre and Rontonio, how will this be done, the turnaround?
You will need will you have a faster reduction in PMSO, quality of the services and reduction in losses. So you imagine 4 years in this case too? And also the CapEx plan behind this process imagining? In these 4 years, you will have to invest in the state of Acre and Rondonia to arrive at this level of excellence so they can be similar to the others that you have. Now in the case of the law that is being voted by the Senate, we understand that there is was voted in Congress, and CDE could be covering part of the losses in Agrin Rondon in the next years.
If this highlight is approved, this can happen. Do you understand that this could be an upside for you if it is approved the way the law is being proposed with this add on from Congress? Well, Britu, I will be answering together with my colleagues. If it is approved, yes, there will be an upside for us. We are monitoring this, into consideration, and we may have this upside.
Concerning CapEx investments, the second item. Later on, we will be informing you about the annual investments, the CapEx, once the budget is approved at the end of the year, and we will announce the CapEx for all the companies. Concerning the first question, Ricardo will answer. Concerning the timing, how long it will take to recover these companies. So what do we intend?
We will have a great focus initially on operational improvements. We have today what we learned with Grupo Redi in the past. We will be in the past. We will be working in the next 2 years with OpEx. And also, we want to bring these companies to a new level.
We will migrate to our systems, migration of systems. We did this. In less than a year, we were able to implement new systems in Mato Grosso. We will rush with this. And the forecast is to do this the end of 2019 and in 2020, 2021 company after the other.
Also synergies, we will do the same as we did in the other companies, shared services to reduce costs, and we will fight the losses. Losses are a very important factor. We're talking about 4 years. It's feasible to have a drop during this period. It's an adequate time, and we will be benefit from the flexibility offered to us.
We will do a complete study of the assets. We will look at the asset base during the first year, accelerating the tariff review to have it done by these assets and having a good base for the next few years. We will have the whole base mapped and also improved. So we have measures we will adopt, nothing different from what we have already done in the other concessions. There will be challenges, but our team is ready to do this.
Our next question comes from Mr. Fernando from UBS. Good morning. Thank you for the call. I'd like to ask you a question concerning leverage.
You showed the level is moderate in the presentation. Now looking forward with the investments you will make, can you make an offer or would you finance the investments with debt? We have a level of leverage that is moderate. Most of the new debts, 4x. We will be analyzing the next 2 months the need.
We will evaluate the need to expand or not or to use or not the shareholder base. Our next question comes Mr. Felipe Mater from Morgan Stanley. Congratulations for the acquisition. I removed my question from the queue because it was answered already.
And just one more issue. Sudam, you mentioned that these companies may benefit from tax incentives from the Amazon. And I remember that in Grupo Rey, there were many tax benefits that were not being used. Is it this do we have the same case in these two distribution companies? Do they have incentives that they are not using?
Felipe, good morning. Thank you for the question. There are similar cases In Rambonea and Akri, there are opportunities to optimize these tax issues, and SUDAM is the great highlights of the tax incentives in the Amazon. 2, we are analyzing our right to this benefit. Our next I have one question.
On Slide 11, you show the base in 2018, BRL615 million and BRL1.3 billion with CX in January. This amount, BRL404 1,000,000, is it the value that you will divide with Electrobras 50% to 1, 50% to the other? This CapEx will be paid by this part will be paid by Electrobras or only half? This is only for a conciliation. What is in the dotted line is the difference only.
So there, we have depreciations, inflation. Now what is in progress at Cerrong, dollars 502,000,000 50% of this will be shared will be divided with Eletrobras. This will depend on an expert report to calculate the value. So this number that is here on the slide is only the difference between both. With the expert report made, expert calculation made in 2017 based on the numbers at the end of 2016.
And this includes from 20 17 until the middle of 2018. Just a follow-up question from my colleague, Felipe. He asked about the possibility of having tax benefits. There were tax credits at Ciron and Eleto Agui. Do you believe you can use them?
In reality, once again, if you consider companies, two factors. Thank you. Congratulations. Our next question comes from Gustavo, Itau BBA. I'd like to ask about cash flow.
We've seen that the conversion to cash in some companies was affected by receivables. I'd like to know about the profile of the consumers. Are you concerned in terms of the cash flow in the future. So the greatest risk is CVA. In CVA, it grew in all Brazil a lot this year.
So today, most of the companies, if you look, including Energiza, were financing consumers. In terms of receivables, as you mentioned, one of the case is was Caergy, the company in the state of Rondonia, the water resource companies, they are signing an agreement, and they will pay a relevant part of their debts to us. So we will thus, there will be a fast recovery of these tests from the water utility. Our next question comes from Mr. Fernando Matos, Bank of America.
Congratulations. Two questions. 1 will supplement the last one. Tarpnik, in the reduction in nontechnical losses, what will come from the private sector and from the public sector? On Slide number 8, what are these consumers classified as others?
Others is public authorities, utilities, public lighting. Concentrated in low tension. I'm not saying we don't have problems in high tension, but the history normally comes from most of the recovery. Thank you. I'd like to pass the floor to Mr.
Ricardo Botelho for his final comments. Sir, you may proceed with your final comments. Well, gentlemen, ladies and gentlemen, concluding our presentation. With this acquisition, we have given another step towards growth. And we did this without giving up all our actions to guarantee a good Sergipe.
In 2017, they received awards as the best distribution companies in Brazil. In Grupo Ready, we had the same. Our focus on results and excellence in services rendered has already guaranteed also to these companies a recognition. Energiza Southeast elected this year the best distribution company in Brazil by the Abrady Award 4 years after the acquisition. And also Energizamato Grosso do Sul, which is among the 10 best companies to work in the Midwest according to the Great Place to our new 900,000 consumers and our history that is successful will be essential to improve quality indicators, also delinquency losses and also to ensure economic financial situation of these distribution companies acquired.
In these two companies. We continue with our objective to be one of the best and most respected companies in electricity in Brazil. With this, I thank you all for your participation. Thank you. Well, this concludes the conference call of Energiza.