Furnas US$351mn fund to finance 72% of 2005 investments

Federally owned Brazilian power company Furnas expects to raise 869mn reais (US$351mn) from a receivables fund and will use the proceeds to finance 72% of its 2005 investment program, company CFO José Cury told BNamericas after a meeting with investors in São Paulo. The generation and transmission company has announced plans to invest 1.2bn reais to strengthen and expand its 19,000km transmission network and to modernize some of its oldest generation units in its 12-plant, 9,467MW generation park, Cury said. "The company is in a drive to be largest transmission and generation company in the country," he said. "To reach this position we will have to invest more than we are at the moment." Furnas invested 1.05bn reais in 2003 and 962mn reais in 2004. Like other state-controlled companies, it has limited access to financing from Brazil's national development bank BNDES as part of country's fiscal control drive. The company has invested greatly in transmission recently, participating in winning consortia in tenders in the last three years, but not in generation. In June the company should start operations of the Ouro Preto-Vitória transmission line to strengthen the transmission link between Espírito Santo state and the national grid in neighboring Minas Gerais state. Furnas is also concluding the Areinha substation in Espírito Santo state, Cury said. The company is also strengthening networks in the states of Goiás, São Paulo and Rio de Janeiro. In generation, the company plans to continue projects to modernize three hydroelectric power plants, among them the 36-year old 1,050MW Luiz Carlos Barreto de Carvalho hydroelectric plant, better known as Estreito. That upgrade will cost 300mn reais. The company will also continue a project to close the cycle at the 775MW Santa Cruz thermoelectric power plant, adding 175MW new capacity by end-June 2006. The only new large generation project the company is currently investing in is the 452MW Peixe Angical project in which it has a 40% stake. The other 60% is owned by Energias do Brasil, the local unit of Portugal's state power company EDP. Investment in Peixe Angical is estimated at over 1bn reais and the project should start operations in May 2006, Cury said. Company-wide, Furnas invested 163mn reais in the first three months of the year with own resources. To expand generation capacity, however, the company will have either buy assets or to bid for new generation capacity, mostly in partnership with private companies, Cury said. The company is currently in talks to buy hydroelectric generation assets from local integrated power group Grupo Rede valued at 930mn reais. The company could also look elsewhere for new assets, according to Cury. "We are always looking at new opportunities," he said, without elaborating further. Furnas is now preparing to bid for new hydroelectric projects in a tender the government plans to hold before the year is out. The company could partner with Energias do Brasil again in at least three projects worth as much as 3bn reais, in which Furnas can only own up to a non-controlling 49% stake due to legal constraints. "Energias do Brasil is a good partner, but we are studying different models for partnerships," he said. Furnas is also expected to participate in the two hydroelectric plants in the controversial 7,000MW Madeira hydroelectric generation project, for which the company recently concluded economic and environmental feasibility studies. The receivables fund is scheduled to be capitalized in May 30. The lead manager of the fund's launch is Spanish bank Santander. The five-year fund will pay 20% over the Brazil's inter-bank lending rate (Selic), which currently stands at 19.5% a year. Last year the company raised 336mn reais from a receivables fund. Furnas is wholly owned unit of federal holding company Eletrobrás and operates mostly the country's southeastern region.