Legal and Regulatory Risks - The company is subject to ongoing risks following its Privatization, including legal challenges and potential reversal proposals from the newly elected President and his party[48]. - The company is facing 23 ongoing lawsuits challenging the model of its Privatization, which could have adverse legal and reputational effects[64]. - The company faces potential fines and liabilities related to the management of government programs, with a previous fine of R$51.7 million imposed by ANEEL[77]. - The company is subject to ongoing litigation concerning compulsory loans made between 1962 and 1993, which could significantly impact its financial condition[163]. - A recent court decision allows for shareholders to be included as defendants in environmental damage claims, which could pose additional risks to the company[153]. - The company is cooperating with an SEC investigation related to the compulsory loan program and ongoing litigation[180]. - The company cannot assure that new lawsuits will not be filed or that new judicial decisions will not be adverse, which may materially affect its financial condition[178]. - The company is subject to regulatory changes by ANEEL, which could adversely impact its financial condition and results of operations[191]. Financial Liabilities and Debt - The company has a total exposure of approximately R$4.3 billion related to debts owed by Amazonas Energia, with R$2.7 billion owed to Eletronorte and R$4.9 billion owed to the company as of December 31, 2022[70]. - The company has substantial financial liabilities and may face liquidity constraints in the near and medium term, affecting its ability to finance planned investments[52]. - The company has fully provisioned R$2.0 billion due under four renegotiated agreements with Amazonas Energia as of December 31, 2022[72]. - The company has increased its provision for debt related to Amazonas Energia to R$4.6 billion due to ongoing legal issues and defaults[71]. - The company recorded R$61.1 billion in financial statements to be received as RBSE and RBNI assets, but cannot guarantee full or timely payments[139]. - As of December 31, 2022, the company reported a deficit of R$5.2 billion in its pension plans, with contributions of R$295 million made during the same period[146]. - The company provisioned R$33.3 billion for probable legal proceedings as of December 31, 2022, with R$29.6 billion related to civil claims[154]. - The company has a provision of R$24.4 billion concerning ongoing judicial decisions related to book-entry credits of compulsory loans as of December 31, 2022[169]. - The company estimates a potential increase in provisions by approximately R$4.4 billion if claims from branches of companies not mentioned in the initial petition are considered enforceable[174]. - The company considers the probability of loss in certain legal proceedings as remote, estimating the amount at R$16.3 billion, with Case ROMA representing the largest portion[171]. Operational and Environmental Risks - The company is exposed to risks related to the management of socio-environmental aspects of its enterprises and projects, which could impact its operations[56]. - The company faces significant risks in the construction and operation of electricity generation and transmission facilities, including regulatory changes and supply chain issues[230]. - Environmental licensing is mandatory, with potential fines ranging from R$500 to R$10 million for non-compliance, regardless of damage caused[236]. - Inadequate environmental management can lead to severe socioenvironmental impacts, including contamination and loss of biodiversity[237]. - The company must manage operational processes effectively to avoid environmental impacts and reputational damage[237]. - Heavy rains led to operational adjustments at the Pedra plant, highlighting vulnerabilities to weather conditions[238]. - The company is subject to potential legal actions due to environmental incidents, which may further impact financial results[238]. - Compliance with environmental laws is critical to avoid shutdowns, fines, and reputational damage[240]. Financial Performance and Market Exposure - The company’s operational and consolidated financial results are dependent on the performance of its subsidiaries, affiliates, and SPEs in which it invests[50]. - The company is transitioning 17 hydroelectric plants to the Free Market, phasing out commercialization on the Regulated Market at a rate of 20% per annum starting January 1, 2023[80]. - The commercialization of energy on the Free Market is expected to become a larger portion of revenues, increasing exposure to market risks[80]. - The company has identified material weaknesses in internal controls over financial reporting, which could lead to misstatements in financial statements[85]. - As of December 31, 2022, the company has equity interests in 21 affiliates and 74 Special Purpose Entities (SPEs) that impact its financial performance[87]. - The company faces potential negative impacts on transmission revenues due to user requests for reconsideration regarding ANEEL's approved numbers[138]. - The company may incur additional costs to purchase energy due to adjustments in the assured energy of its hydroelectric plants, which are reviewed every five years[140]. Economic and Political Environment - Political instability following Brazil's presidential elections in October 2022 has led to mass protests and heightened uncertainty regarding the economic agenda of the new administration[215]. - Brazil's sovereign credit ratings are currently BB-/B (stable), Ba2 (stable), and BB- (negative), which may affect the company's cost of funding and share prices[228]. - The Brazilian government frequently intervenes in the economy, which could adversely impact the company's business and financial condition[210]. - The Brazilian economy is vulnerable to external shocks, which may adversely affect the trading markets for securities of Brazilian issuers[207]. - Brazil's annual inflation rates were 5.79% in 2022, 10.06% in 2021, and 4.52% in 2020, indicating a significant increase in inflationary pressures[223]. - The Brazilian real depreciated at a rate of 6.5% in 2021 but appreciated by 6.5% in 2022, ending the year at an exchange rate of R$5.2177 per U.S.$1.00[219]. - The company’s total consolidated indebtedness denominated in foreign currencies was R$7.5 billion as of December 31, 2022, down from R$8.3 billion in 2021[222]. - As of the date of the annual report, the company cannot assure that any compensation received for assets deemed essential public services would equal their market value, potentially affecting financial condition[200]. Project-Specific Risks - The company is required to conduct studies for the optimal utilization of its plants within 36 months and implement economically feasible projects within 132 months[61]. - The company is required to maintain existing guarantees for certain financings of Eletronuclear and raise funds for the completion of the Angra 3 nuclear power plant[60]. - The revised budget for the Angra 3 nuclear power plant totals R$29.3 billion, with an estimated operational start date pushed to July 2028[122]. - The Angra 3 project assumes a tariff to be approved by CNPE, which is critical for ensuring the project's economic viability[121]. - The company may incur unexpected expenses until the completion of the Angra 3 nuclear power plant, which has faced multiple delays[118].
Eletrobras(EBR_B) - 2022 Q4 - Annual Report