Debt and Financial Condition - As of December 31, 2019, the company's dollar-denominated debt increased by U.S.$126 million, totaling R$8.9 billion, which represents 21% of total consolidated indebtedness[300] - The total consolidated indebtedness reached R$9.1 billion, with foreign currency debt accounting for 21.5%[300] - Any further downgrading of Brazil's credit rating could adversely affect the company's cost of funding and the trading value of its securities[307] Economic Environment - Brazil's inflation rate for 2019 was reported at 4.31%, with historical rates showing significant fluctuations over the past years[301] - The Brazilian government maintains a tight monetary policy with high interest rates, which limits credit availability and economic growth[301] Regulatory and Compliance Risks - Regulatory changes in the energy sector are unpredictable and may materially impact the company's financial condition and operations[334] - The company is subject to administrative intervention by ANEEL if it fails to comply with service levels or contractual obligations, which could lead to loss of concessions[328] - The company is subject to penalties under ANEEL Resolution No. 846/19, which can include fines up to 2.0% of the Net Operating Revenue for the previous fiscal year[336] - Eletrosul estimated a fine of R$292.3 million related to the termination of the transmission concession agreement, with R$45.9 million provisioned as probable[337] - Eletronorte is currently suspended from participating in auctions for 12 months from December 17, 2019, while Chesf and Eletrosul face similar restrictions until December 2021 and June 2020 respectively[338] Hydrological and Energy Risks - The company is exposed to hydrological risks due to its reliance on hydroelectric power generation, which can lead to increased costs during periods of low precipitation[308] - The Energy Reallocation Mechanism mitigates risks associated with energy generation deficits, but can lead to volatility in short-term market prices[308] - The company has adhered to renegotiation of hydrological risk in the Regulated Market, which may involve transferring risks to consumers[312] Environmental and Safety Compliance - Environmental regulations are under review by the Brazilian Congress, which may lead to increased liabilities and capital expenditures for the company[351] - The company has established environmental policies and procedures for waste management and compliance with environmental laws, with the fourth Environmental Policy in force since June 27, 2019[356] - The company faces potential administrative and criminal penalties for non-compliance with safety, health, and environmental laws, which could adversely affect its operations and reputation[353] - Changes in environmental regulations or enforcement policies could materially adversely affect the company's operations and financial condition[358] Cybersecurity and Information Security - The COVID-19 pandemic resulted in approximately 70% of employees working from home, necessitating updates to communication and information security protocols[347] - The company has implemented an information security program based on the NIST CyberSecurity Framework, monitored quarterly by the Board of Directors[345] - The company is aware that costs related to addressing cyber risks could be significant, and it currently lacks specific insurance coverage for such risks[346] Shareholder and Dividend Policies - The company must pay shareholders a mandatory distribution equal to at least 25% of adjusted net profit for the preceding fiscal year, with preferred shares having priority[369] - If the company incurs net losses or insufficient net profits, it may not pay mandatory dividends, as seen in the year ended December 31, 2018[370] - The company may create a reserve of unrealized profits if net income is characterized as not financially realized, which can be used to absorb losses[371] - Preemptive rights related to preferred or common shares may not be exercised unless a registration statement under the Securities Act is effective[372] - Changes in Brazilian tax laws could impose income tax on gains from the disposition of shares by non-residents, potentially affecting the sale of ADS[373] Foreign Investment and Remittance Risks - The Brazilian Government previously imposed remittance restrictions for approximately three months in late 1989 and early 1990, which could adversely affect holders of ADS[365] - Holders of ADS may face unfavorable consequences if they exchange ADS for underlying shares, as they would lose the custodian's electronic certificate of foreign capital registration after five business days[366]
Eletrobras(EBR_B) - 2019 Q4 - Annual Report