Good morning, ladies and gentlemen. We would like to welcome you to the conference call of Energisa concerning the acquisition of the shareholder control of Ceron Eletroacre. The participants will be in the listen mode only during the presentation of the company. Next, we will begin a Q&A session when further instructions will be given. If any participant needs any assistance during the conference call, please dial *0 to get assistance from an operator. We also inform that this conference call will be in Portuguese by the company's management and in English through simultaneous translation. Before proceeding, we would 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 Energisa, and also based on information currently available to the company. Future considerations are not guarantees of performance.
They involve risks. 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 other operational 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 would like to pass the floor to Mr. Maurício Botelho who will begin the presentation. Sir, you have the floor.
Good morning to all. I would like to thank you all for participating in this conference call on the acquisition of the shareholder control of Ceron and Eletroacre. We have with us Ricardo Botelho, Chairman of Energisa, Geraldo Souza, Vice President of Distribution, Alexandre Nogueira, Vice President of Regulation and Institutional Relations, Cláudio Brandão, Controllership and Finance, Mariana Rocha, Manager of Investor Relations.
We will show some slides and then we will have the Q&A session. Please, let's go on to slide number three. In the auction that happened yesterday, Energisa offered a discount price of 21% for Ceron and a lower price discount 31% for Eletroacre. As you can see on the table, the regulatory PMSO with the prices for the auction were BRL 293 million for Ceron. With our discount, it went down to BRL 283 million, BRL 10 million lower than the parameters of the auction, and BRL 20 million discount in relation to the PMSO done in 2017. The same applies to Eletroacre. The price had been defined at BRL 128 million, a little above the PMSO made in 2017. With this discount, it also resulted in a reduction in non-technical regulatory losses in low-tension markets, which are above the limit established by the regulatory agency, ANEEL.
The discounts is also applied on the financing of RGR, which is passed on to the tariffs, adding the two distribution companies. Energisa gave up passing to the tariff BRL 160 million in RGR. With these loans and five 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 Ceron, 3%. Here we have the details. Ceron has 633,000 clients in 52 cities, a market of approximately three gigawatt-hours. It becomes the fifth-largest distribution company of the Energisa Group. The financial assets we can see here or what the distribution company will receive by the end of the concession, which is a reference for BRR, is BRL 1.3 billion. Eletroacre, 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. As we did with Grupo Rede right after signing the contract of the concession, we will request this benefit. We'd like to go on to slide number five. Here we have the situation of Energisa after these acquisitions. We will be serving 862 cities, representing approximately 25% of the Brazilian territory and a population of 20 million inhabitants. In terms of the market for Energisa, this acquisition resulted in a growth of 14%. In terms of assets, BRR, if we add up these values, as already mentioned, we would have BRL 10.9 billion in BRR, a growth of 19%. Let's go on to the next slide. Here we have a slide showing in more detail the concessions in the state of Acre and the state of Rondônia.
These regions have a concentration of clients similar to EMT and ETO, we see in the case of Acre, we see a greater concentration of clients and networks in the region close to the border with Rondônia. In the capital, Rio Branco, we have around 50% clients of the distribution company. Here above the region of Cruzeiro do Sul, we see a concentration of clients representing 12% of the total. As I said, in the case of Acre, the greatest concentration is close to Rio Branco. This is the capital of the city. 50% of the clients are in this region. Here to the west, we have another region, Cruzeiro do Sul. These both region represents 75% of the load. It's a relatively simple concession, two concentrations. In the state of Rondônia, one-third of the load is in Porto Velho, the capital.
Both systems have what we call isolated systems. These will be eliminated as time goes by. The proximity of these two states in relation to Mato Grosso, the state of Rondônia, we have significant synergies due to the proximity. Let's go on to the next slide. Talking about the dynamics and 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 grew at a rate of 6.4% and 6.9% in the last 10 years, four percentage points above Brazil in general. Also a comparison here with (AMP). In the case of Ceron, the state of Rondônia is a frontier region where agriculture is growing, producing soybean and also corn and other grains.
It has the fifth largest concentration of cattle in the country, recently it increased also the creation of pork and hogs. Here in Acre, we have two economic regions here, Cruzeiro do Sul being the main one, and the Vale do Rio Acre, which has agricultural activity and also rubber, food, manioc, rice, corn, fruits, apart from having the capital, Rio Branco. We also have a bridge that is being built, this will allow an easier connection. For the time we have BR-364, it is a highway that suffers with a lot of floods during some times of the year. The next slide. Market profile. There is a concentration of residential clients. We see here in the case of the state of Acre, 45.3%, and in Ceron, 40.4%.
Here at the bottom, the slide at the bottom, we see here the average consumption, very similar to Mato Grosso. We see here 221 gigawatt hours per month and 169 in the other. I believe it is worthwhile stressing that there is demand because of lack of investments. With investments, demand will increase a lot. We have here, as I mentioned before, 19 of the 35 isolated systems 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 us go on to the next slide nine on losses. Here, we are showing the opportunities to reduce losses in these concessions, which are above their regulatory levels. Looking at the left, on the left, in the case of Ceron, we have 28.3% of the energy injected.
We made a comparison, if this company can operate like the levels of Mato Grosso. Here, 20%. We have a potential for a reduction of 585 gigawatt hours of losses, and the growth of the market from 404 gigawatt hours. This is linked to an assumption that we used that 65% of the consumption through non-technical losses, 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 us talk about quality. As you can see, all the concessions are here with their capacity to improve indicators of DEC/FEC. In fact, we made a comparison with Mato Grosso 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.
With this type of benefit, we're should have the same benefits in these two new concessions. We are working here in Grupo Rede. The next slide, please. On regulatory base. First point that I would like to highlight, 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 Ceron, BRL 372 million at current tariff base, and the potential to get to this value here, BRL 1,000,275,000. In the case of Eletroacre, we have here almost twice, and this is the potential for growth. We will work to have an immediate tariff review of these concessions in 2019 to try to capture these investments. In the case of Ceron, irrelevant amounts invested in 2017/'18, and they have BRL 500 million to Ceron in their asset base.
We would like to go on to the next slide on debt. We will show here the indebtedness of Energisa before and after the acquisition. Right now, Ceron has debts discounted from the cash position of BRL 1.1 billion. Eletroacre, BRL 736 million. We are discounting from this debt the RGR of the companies, 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 Eletrobras, BRL 5.7 billion by Ceron, and we have an increase in capital, BRL 1.8 billion Eletrobras accounts receivable here. In Acre, Eletrobras will have this part, BRL 295 million in debts to be assumed by. In terms of debt, we have three times net debt EBITDA, and we will be close to 3.5 times the EBITDA.
In this way, with a pro forma covenant after the acquisition, our debt will be 3.5 times net debt EBITDA. Today, there are levels of 4 times EBITDA. We will manage this debt. 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 mandatory increase in capital, BRL 238.8 million, and in Ceron, BRL 253.8 million. In the case of Acre, the state of Acre, this increase in capital is more than enough to pay off the suppliers. In the case of Ceron, we have here the debts. This will be reduced by the mandatory increase in capital. In the case of Ceron, BRL 23 million. The next slide, contingencies.
One of the concerns that we had in this process from the beginning of the discussions in 2016-2017, the levels of contingencies outside the year-end balance. During this process, we made adjustments. In the case of Eletroacre, contingency was BRL 14 million. Today, we have a total level of BRL 144 million, and we have this evolution, including taxes. In Ceron in the last quarter, they made a relevant agreement with the water company in the state, Water Resources Company. The Water Resources Company gave a reduction in helping the tax debts of Ceron. Here, BRL 623.5 million in accruals or provisions, and also contingencies were recorded for the amount of BRL 885 million, of which BRL 351 million were linked to credits from the Water Resource Company.
Adding the total debts already mentioned, the contingencies on the lower slide, and the outstanding debts with vendors, already considering BRL 22 million, which were recorded in Q2 2018. Going on to conclusions. We have here markets that have a great potential for growth, great growth potential. Agriculture is expanding, especially in Ceron. We have an expansion in agriculture, and investments we will make. We will have loads. Investments will be made to increase the demand that already exists. 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 there is a great potential to reduce losses. We have a very successful state.
We have the Grupo Rede 2. 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&A session. The next slides talk about the next steps, and thus we should end this process, we should conclude this process by December. We'd like to begin the Q&A session. Thank you. We'd like to begin the Q&A session. If you have any question, please dial asterisk 1. If your question was answered, you may leave the queue pressing the pound key. We will answer the questions as we receive them. Please remove the handset when asking a question. In this way, we will have a better quality of sound. Please wait while we collect the questions.
Mr. Thiago Silva from Santander would like to ask a question. Good morning. Thank you for the call. Congratulations. I have two questions. The first has to do with regulatory losses. Do you have an estimate of when you will reach the regulatory level for losses? The second question, the auction. I understood, and please correct me if I'm wrong, when you bid for Eletroacre in the state of Acre, you could participate in the auction of another asset. Is that correct? Well, answering the question, in terms of reaching the regulatory level of losses, you can see the example of Grupo Rede. In four years, we brought all the companies to the right quality levels and also the correct loss levels. We understand we can do the same in Acre and also in Rondônia.
Concerning the live bidding, those who acquire Acre 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 option may be used in other auctions. Sorry.
Thank you. Our next question comes from Mrs. Maria Carolina Carneiro from Credit Suisse.
Good morning. I'd like to understand the strategy. You said that you would have no interest in participating in future auctions. Now with this auction of Eletroacre, 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. 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. We also made an announcement. We haven't decided yet about the second one. Thank you. Good morning, Carolina. Alexandre, the second question. Truly, this law applies directly to the Amazon. Some points could affect the state of Acre and Rondônia. We didn't consider this in our evaluation. We're following the scenario, and we're monitoring this.
Thank you. Our next question comes from Mr. Marcelo Britto from Citibank.
Good morning. Mauricio, Ricardo, can you give more details about the turnaround process? There is a timing, as you said, in four years you brought the other companies to a good operational level. In Acre and Rondônia how will this be done, the turnaround? Will you have a faster reduction in PMSO, quality of the services, and reduction in losses? You imagine four years in this case, too? Also the CapEx plan behind this process and operational changes in this company. What are you imagining in these four years you will have to invest in the state of Acre and Rondônia to arrive at this level of excellence? 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 a flexibility in losses, both for Acre and Rondônia. This was done through a highlight when it was voted in Congress, and CDE could be covering part of the losses in Acre and Rondônia 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, Britto, I will be answering together with my colleagues. Concerning the last question, if it is approved, yes, there will be an upside for us. We are monitoring this, Alexandre too. We considered this in our proposal. We took 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. We will announce the CapEx for all the companies. Concerning the first question, Ricardo will answer. Good morning. Concerning the timing, how long it will take to recover these companies. What do we intend? We will have a great focus initially on operational improvements. We have today what we learned with Grupo Rede in the past. We will be working in the next two 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 by the end of 2019, and in 2020, one company after the other. 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 four years. It's feasible to have a drop during this period. It's an adequate time. We will 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 2019. A tariff review. Thus capturing these assets and having a good base for the next few years. We will have the whole base mapped and also improved.
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.
Thank you. 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 will you finance the investments with debt? We have a level of leverage that is moderate. Most of the new debts, four times. We will be analyzing the next two months, the need. We will evaluate the need to expand or not, or to use or not the shareholder base.
Our next question comes from Mr. Felipe Mattar from Morgan Stanley.
Good morning, gentlemen. Congratulations for the acquisition.
I removed my question from the queue because it was answered already. Just one more issue. SUDAM, you mentioned that these companies may benefit from tax incentives from the Amazon. I remember that in Grupo Rede, there were many tax benefits that were not being used. 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 Rondônia and Acre, there are opportunities to optimize these tax issues, and SUDAM is the great highlight of the tax incentives in the Amazon. Two, we are analyzing our right to this benefit. Thank you. Our next question comes from Mr. Francisco from Bradesco. Good morning. Thank you for the call. Congratulations for the acquisition. I have one question. On slide 11, you show the base in 2018.
BRL 615 million, 1.3 billion with the acts in January. This amount, BRL 404 million, is it the value that you will divide with Eletrobras 50% to one, 50% to the other? This part will be paid by Eletrobras, or only half?
This is only for a conciliation. What is in the dotted line is the difference only. There we have depreciations, inflation. What is in progress at Ceron, BRL 502 million. 50% of this will be divided with Eletrobras. This will depend on an expert report to calculate the value. 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. This includes from 2017 until the middle of 2018. Thank you. Just a follow-up question from my colleague, Felipe.
He asked about the possibility of having tax benefits. There were tax credits at Ceron and Eletroacre. Do you believe you can use them? In reality, once again, if you consider SUDAM, the tax incentives for the Amazon and the tax base in these companies, we will have a good time, maybe 10 years without taxes, considering these two factors. Thank you. Congratulations.
Our next question comes from Mr. Gustavo, Itaú BBA. Thank enormous for the call. Congratulations for the acquisition. 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? The greatest risk is CBA. In CBA, it grew in all of Brazil a lot this year.
Today, most of the companies, if you look, including Energisa, we're financing consumers. Now, in terms of receivables, as you mentioned, one of the cases was CAERD, the company in the state of Rondônia, the water resource companies, they are signing an agreement, and they will pay a relevant part of their debts to us. Thus there will be a fast recovery of these debts from the water utility. Thank you. Our next question comes from Mr. Fernando Mantos, Bank of America. Good morning. Thank you for the call. Congratulations. Two questions, one will supplement the last one. In Opex, in the reduction in non-technical losses, what will come from the private sector and from the public sector? On slide number eight, what are these consumers classified as others? Others is public authorities, utilities, public lighting. Now, the recovery of losses, this is concentrated in low tension.
I'm not saying we don't have problems in high tension, but the history normally comes from low tension, residential clients, and also commercial clients. It's where you have most of the recovery. Thank you.
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.
Ladies and gentlemen, concluding our presentation. With this acquisition, we have given another step towards growth. We did this without giving up all our actions to guarantee a good management. We want to repeat the success we had in the states of Paraíba and Sergipe. In 2017, they received awards as the best distribution companies in Brazil. In Grupo Rede, we have the same. Our focus on results and excellence in services rendered has already guaranteed also to these companies a recognition.
Energisa Southeast elected this year the best distribution company in Brazil by the Abradee Award, four years after the acquisition. Also Energisa Mato Grosso do Sul, which is among the 10 best companies to work in in the Midwest, according to the Great Place to Work award. We want to take quality services 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. We want to really continue to grow and offer professional growth for our new employees 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.
This concludes the conference call of Energisa. Please disconnect your lines. Thank you.