We  reached a conceptual agreement with the government representatives on Sunday night.  The main points are:  

     1. Rationing losses:   Defined methodology giving distribution companies recovery over the next 36 months of rationing losses realised   from June 01 until the end of rationing in 02. Recovery includes financial compensation. Immediate funding of 80% through BNDES, with Brazilian government funds. Loans liquidated over the 3 year period as tariff increases are realised.  Funding scheduled by December 15th.  Elektro Ebitda impact of approximately R$191million or US$ 73 million.

       2.  April/May MAE settlement :   Market will settle under current rules due to pre-rationing conditions, confirming the procedures used on Elektro's books.  Impact of approximately R$ 18 million or US$ 7 million. 

       3.  Parcel  "A" for the future:  All non-controlable costs to which LDC's are subjected to including power purchases, sector charges, are passed through to final tariffs either using a tracking account mechanism or by aligning adjustment dates with  the LDC tariff revision date.  Tracking account will be subject to financial compensation from the date costs are incurred until the effective pass through and collection , eliminating a major risk for the distribution sector. Elektro Ebitda impact  2002 forward of R$ 60 million or US$ 19 million, as had been considered in the 2002 plan.  This methodology represents major risk mitigation going forward, as the initial power supply contracts are renewed starting in 2003.

        4. Parcel A from the past:   Min Parente has agreed to the concept recovering non controllable  that were not passed through to tariffs since late 1999 using the same methodology agreed to for future recoveries and has a dedicated team from the Federal Attorney General's office targeting a final solution in ten days.    Elektro impact  is R$145 million or US$ 55 million in 2001. The proposed mechanism for recovery is after the 36 months for the rationing losses.  

We are currently finalising a memo of understanding and the government team is winding up the settlement with the generators in order to finalize the terms of the overall agreement.

Min Parente has committed to resolving the open issues affecting investors in the power sector.  These  agreements represent a major step forward, significantly improving  the value of our businesses. By  solving the pending issues for the rationing losses, thus eliminating the Annex 5 controversy the MAE should function normally, allowing us to operate Eletrobolt and settle against the pool.  

Total amounts for the sector represent about R$ 10 billion or US$3.8 billion at the current rates.  Our team has led the sector negotiations for months since the rationing, and have been instrumental in convincing the government of the need for implementing these changes.