Alupar has the following competitive advantages:
Strong cash flow and revenue predictability. Alupar’s concession agreements in the transmission segment have a 30-year term and provide for exceptionally stable revenue flows, ensuring a predictable source of funds to sustain future investments. Alupar’s transmission revenue does not depend on the volume of electricity transmitted through its network and is adjusted annually for inflation, measured by the IGP-M general market price index or the IPCA consumer price index. The transmission segment regulations establish protection mechanisms against default and tax changes, further strengthening the predictability of Alupar’s future revenues. Most of the above points also apply to generation, except for certain sector-specific features, and the Company started benefitting from this flow of funds thanks to the start-up of generation projects from 2010 on. As a result, Alupar has high credit ratings in the national scale (AAA (bra) and BB in the international scale, assigned by Fitch Ratings, one of the three main international credit rating companies, being very close to Brazil’s sovereign rating.
Experience in the identification, development and execution of energy-related infrastructure projects. The members of Alupar’s top management have, on average, more than 25 years of experience in the Brazilian infrastructure sector, particularly in the development of energy-related greenfield projects. Alupar believes that this experience puts it in a privileged position in regard to identifying and executing new projects, as well as contributing to ensuring profitability and the creation of value to the shareholders. Its capacity to plan and execute projects, the result of the experience and commitment of its professionals, is translated into efficient operations, the high availability of its transmission grids and investments that comply within ANEEL’s budgets and deadlines.
Modern installations allowing greater operating efficiency. All the Company’s transmission lines and substations began operations as of 2002 and all its generation facilities as of 2010. Alupar believes its installations will continue to present one of the sector’s highest levels of availability for several years, requiring low investments in operating maintenance to preserve current revenue levels and permitting investments in new projects that will contribute to its growth, in addition to minimizing the risk of reduction in revenue.
Competitiveness and profitability through strategic partnerships. Alupar has experience in identifying strategic partners that complement its expertise in order to develop new projects. The Company believes these partnerships allow it to (i) improve its operational knowledge through the sharing of experience; (ii) mitigate the risks associated with large projects by dividing investments and ensuring improved access to financing sources; and (iii) gain competitiveness for the development of new businesses through partnerships in concession auctions in which Alupar and its partner use their complementary know-how to maximize project returns.
The key points in Alupar’s strategy are:
To prospect and carefully plan investment projects to ensure the highest possible return with the lowest possible risk. Alupar will assess in detail every opportunity that is compatible with its strategies and will attempt to identify and effectively control the several risks involved using market best practices. The Company prioritizes projects that ensure stable revenue and lower execution risk to obtain investment returns that are compatible with the assumptions used in the planning. The Company relies on leverage to maintain its balanced capital structure in order to maximize shareholder value. Finally, it seeks to attain these goals by carefully selecting investment opportunities that are in line with its focus on creating value to shareholders.
To focus generation investments on SHPPs, wind farms and photovoltaic power plant. Alupar will direct its future generation investments towards SHPPs, wind farms and photovoltaic power plant greenfield projects. The Company believes that small hydroelectric plants have the following operational, technical and construction-related advantages over their larger counterparts: (i) lower risk of adverse environmental impacts; (ii) lower construction complexity; (iii) the possibility of negotiating 100% of the energy generated in the free market, where tariffs are not regulated by the government; (iv) wheeling charges discounts. Alupar will also analyze opportunities for investing in alternative energy sources, such as wind farms and photovoltaic power plant which shows profitability levels. The Company is working on the geographic expansion of its energy matrix in order to dilute risks.
To take part in upcoming Brazilian transmission and generation concession auctions. Alupar intends to take advantage of growth opportunities through the development of greenfield projects in the transmission and generation segments of energy in Brazil. The Company believes it is fully prepared to do so thanks to the expertise of its executives in the prospection, design, planning and execution of infrastructure projects, allowing it to (i) implement projects from conception to operational start-up while strictly keeping with the business plan; (ii) maximize the use of third-party capital, fully complying with coverage ratios and covenants the lending institutions; and (iii) establish partnerships to reduce risks.
To maintain strategic partnerships with other companies in the sector. Although Alupar concentrates its operations on small-sized projects, it maintains strategic partnerships with companies that have the technical and financial capacity to make large and medium projects feasible. Alupar currently controls most of all the assets operated with other partners.
To ensure individual financing for its subsidiaries’ projects. Although financing is coordinated, the funding for each of the subsidiaries’ projects is raised independently of the others with the financial contribution of third parties structured as project finance. This strategy is intended to: (i) optimize the use of third-party capital by adjusting the characteristics of the debt to the project’s cash flow term and profile and (ii) allow the segregation of risks among the projects to the extent that each subsidiary’s funds are restricted to their respective projects.