ERSA Small Hydroelectric Power Project

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In May 2008, Empresa de Investimento em Energias Renovaveis SA (ERSA) began constructing Cocais Grande, the first of ten Pequenas Centrais Hidreletricas (PCH’s) - Small Hydroelectric Power Plants, in the states of Minas Gerais and Santa Catarina. The total package consisted of the following facilities: 7.5-MW Varzea Alegre, 9-MW Varginha, 10-MW Ninho da Aguia, 10-MW Cocais Grande, 11-MW Sao Gonçalo, 13-MW Arvoredo, 14-MW Corrente Grande, 18-MW Aiuruoca, 21.5-MW Paiol and 23-MW Barra da Paciencia. The projects were held by 10 special purpose entities, which were in turn held by PCH Holding SA, a direct subsidiary of ERSA. In Brazil, PCH’s are exempt from concession law and therefore no tendering was conducted after approval by the federal electricity regulator Aneel. PCH’s also enjoyed special tax incentives from Brazil’s government including: 100% tax exemption for certain power generation tariffs such as the Public Asset Use (UBP) and Financial Compensation for the Use of Water Resources (CFURH) and the Research and Development ( R&D) charges as well as a 50% exemption on the tariff of Use of the Distribution System (TUSD). The total project cost was estimated at R$ 774.2 million (US $423.1 million). In November 2008, Brazil’s national development bank BNDES approved a R$ 471.5 million (US $231.2 million) loan to implement the projects. Drawdown on the debt was given to blocks of projects based on their stage of completion. PCH Holding SA was created to hold the funds from the BNDES loan and then disperse it to each of the ten special purpose entities. Cocais Grande, the first PCH, was expected to become operational in 1Q 2009. The remaining nine facilities were expected to become operational in 2010. The funding included transmission lines which were to connect the power plants to the national energy grid. Figures were converted to USD based on the market rate, period average for 2008 published by the IMF. Operations commenced in each power plant in the following dates: * In March 2009, PCH Cocais Grande; * In March 2010, PCH Paiol; * In April 2010, PCH Arvoredo; * In June 2010, PCH Sao Goncalo; * In October 2010, PCH Varginha; * In January 2011, PCH Ninho da Aguia; * In February 2011, PCH Corrente Grande; * In March 2011, PCH Barra da Paciência; and * In April 2011, PCH Várzea Alegre. In April 2011, ERSA entered into a partnership with CPFL Energia to merge the generating assets of the two companies and to transfer the ownership and management of these assets to a newly created company called CPFL Renovaveis. CPFL Energia was set to maintain 63.6% of this new company's shares, while ERSA's shareholders would maintain 36.4%). Figures were converted to USD based on the market rate, period average for 2008 published by the IMF.