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IBOV -0.19% (0.00)
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TAEE11 0.74% (0.00)
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EIGPM1 -197.00% (-0.64)
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EIPCA1 33.30% (1.16)
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IEEX 0.95% (0.00)
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IBXX -0.21% (0.00)
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IGCX -0.32% (0.00)
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Before making an investment decision, potential investors should carefully consider all information available on this website, in particular the risks mentioned below. TAESA’s business, financial condition and results of operations may be materially adversely affected by any of these risks and, therefore, adversely impact the securities issued by the Company. The risks described below are those known to TAESA and are believed to materially affect the Company. Additional risks not known by TAESA or those irrelevant may also affect its business.

A substantial portion of the Company’s results depend on the business, financial condition and results of operations of certain subsidiaries that, in the event of losses, may adversely impact the Company’s results.

The Company develops a substantial portion of its business  through the subsidiaries.

The eventual reduction of the generation capacity in terms of results and cash flow by such subsidiaries may reduce the dividends and interest on capital paid to the Company, which may adversely impact the Company’s businesses, results and financial condition.In addition, some of the subsidiaries may require new investments not originally planned, as well as sign loan agreements that prohibit or restrict the transfer of capital to the Company. Thus, it is not possible to guarantee that resources from the subsidiaries will be transferred to the Company, which may cause an adverse effect on your results.

Some of our concession agreement shave provisions on the Annual Permitted Revenue (“RAP”) reduction, which may adversely affect the Company.

Electric power transmission concessionaires are compensated for the availability of their facilities, according to the amount approved by Brazilian Electricity Regulatory Agency (“ANEEL”), upon the granting of the concession agreement, and not according to the amount and the electric power charge transmitted. By making transmission facilities available for commercial operation, the Company, its subsidiaries and jointly subsidiaries are entitled to Annual Permitted Revenue (“RAP”) adjusted annually by the variation of the IGP-M or IPCA, according to the specifics of each concession contract. According to the terms concession contracts of the so-called “Category II” (for more information, see item 7.1 of the Reference Form), the RAP will be reduced by 50% from the 16th year,  from the start of commercial operations of the undertakings, until the end of the concession period.

Based on the foregoing, the Company may suffer a considerable reduction in cash flow, considering that in the years 2017, 2018 and 2019, seven concessions were affected due to the referred provisions of the concession contracts. The Company cannot guarantee that it will be able to (i) win new bids; or (ii) to acquire existing concessionaires (either through the acquisition of equity interest or other), in the terms and amounts ​​necessary to recompose its cash flow. If it is not successful in recomposing its cash flow, the Company may have its growth and investment capacity and payment capacity adversely affected.

The Company has a significant level of indebtedness, and obligation to maintain financial ratios, which may adversely affect its business and ability to meet its obligations, as well as its financial condition.

The Company has obligations (loans and financings, debentures and derivative financial liability instruments – current and non-current) that, if there are significant increases in interest rates will lead to an increase of future expenses with debt charges, which may, in turn, reduce the liquidity of the Company and, consequently, its capacity to comply with its obligations.

In addition, the Company may incur additional debt in the future to finance acquisitions, investments or for other purposes, as well as to conduct its operations, subject to the restrictions applicable to the existing debt. If the Company incurs additional debt, the risks associated with its leverage may increase and, in the event of non-compliance with certain obligations to maintain financial ratios, there may be an early maturity of the debts previously contracted, which may significantly impact the Company’s ability to honor your obligations. In the event of early maturity of debts, assets and cash flow may be insufficient to settle the outstanding balance of financing contracts. In addition, the impossibility of incurring additional debt may affect the Company’s ability to make the necessary investments in its activities, affecting its financial condition and the results of its operations.

The Company may not be able to successfully implement its growth strategy, through the acquisition of existing electricity transmission concessionaires and new transmission concessions, which may have a material adverse effect on the Company's financial capacity.

The Company’s growth strategy involves obtaining new transmission concessions that may be the subject of auctions held by ANEEL and the acquisition of existing concessionaires or relevant stakes in them, including through participation in possible privatization processes of state-owned companies that operate in the electricity transmission sector. The acquisition of companies, relevant interests or assets involves other operational and financial risks, which include difficulties in integrating administrative and operational management between existing assets and those that may be acquired, responsibility for eventual contingencies and hidden liabilities and the allocation of efforts administrative and financial aspects of the integration process. In addition, any operation for the acquisition of electric power transmission concessionaires, or for a relevant equity interest in a company operating in this sector, carried out by the Company is subject to approval by ANEEL and the Administrative Council for Economic Defense – CADE, and may also be subject to the approval of third parties, such as creditors and partners. The Company depends on other factors to implement its business strategies, such as establishing the acquisition of advantageous long and short positions, and growing with financial discipline and maintaining operational efficiency.

It is possible that the Company does not obtain the expected benefits from the acquisition of interests in transmission concessionaires. In addition, the Company may be unable to efficiently integrate a business acquired in its organization and successfully manage that business or the company that results from these acquisitions. The integration process of any acquired business may subject the Company to certain risks, such as unforeseen expenses and potential delays related to the integration of the companies’ operations, diversion of management’s attention from ongoing businesses and exposure to unexpected contingencies and legal claims made to the business acquired before its acquisition. The Company may not be successful in dealing with these or other risks or problems related to past or future acquisitions. The eventual impossibility of the Company to integrate its operations successfully, or any significant delay in achieving this integration may adversely affect it.

Thus, it is not possible to ensure that the Company reaches growth opportunities, that it will be the winner in the auctions held by ANEEL, or that these acquisitions will be approved by ANEEL, CADE or by creditors, partners or other third parties, or that they will have a positive result in the future for the Company. The Company’s inability to implement its growth strategy or to carry out intended acquisitions, the realization of significant contingencies arising from such acquisitions or the realization of acquisitions that do not bring a positive result in the future, are factors that may cause a material adverse effect on operational results and financial capacity.

Contractual restrictions on the indebtedness capacity of the Company, its subsidiaries or jointly controlled companies may negatively influence its ability to pay.

The Company, its subsidiaries and jointly controlled companies are subject to certain clauses in existing debt instruments that restrict their autonomy and ability to contract new loans. In addition, the existence of limitations on the indebtedness of the Company, its subsidiaries or jointly controlled companies may affect the Company’s ability to raise new funds necessary to finance its activities and its falling due obligations, as well as the Company’s growth strategy, the which may negatively influence your ability to honor financial commitments.

Any failure to comply with the contractual obligations of the Company, its subsidiaries or jointly controlled companies may negatively influence its ability to pay.

The Company, its subsidiaries and jointly controlled companies are subject to compliance with contractual obligations provided for in contracts with third parties that restrict their autonomy. In the event of non-compliance with any provision of the aforementioned contracts, the maturing amounts (principal, interest and fine) subject to the respective contracts will become due. The early maturity of the obligations of the Company, its subsidiaries or jointly controlled companies may have a negative impact on the financial situation of the Company, including considering the forecast of cross maturity of other obligations assumed by it, its subsidiaries and jointly controlled companies, according to clauses present in several loan, financing and debentures agreements entered into with third parties. In the event of early maturity of debts, the Company’s assets and cash flow may be insufficient to settle the outstanding balance of loans, financing and debentures contracts.

It is not possible to assure if, and under which conditions, the current concessions of the Company, its subsidiaries, jointly subsidiaries and affiliates will be renewed. The expansion plans of the Company, its subsidiaries, jointly subsidiaries and affiliates may be adversely affected if they are unable to obtain new concessions or lose any of the concessions they currently hold.

The Company and its subsidiaries, jointly subsidiaries and affiliates conduct, directly or indirectly, their electric power transmission activities based on concession agreements entered into with the Government, with a term of 30 years30 years from the date of signature of each contract, currently expiring between the years 2030 and 2049. The Federal Constitution requires that all public service concessions be awarded through bidding. In 1995, Law 8,987 / 95, of February 13, 1995 (“Concessions Law”), which governs public bidding procedures, was enacted. According to the Concessions Law, modified by Law No. 10,848 / 04, of March 15, 2004 (“Law of the New Model for the Electric Sector”), and, under the terms of the concession contracts, the concessions held by the Company may be extended by the Granting Authority for a maximum of the same period, upon request made by the concessionaire, regardless of being subject to the bidding process, provided that (i) the concessionaire has met the minimum performance standards, (ii) accept any revisions to the conditions stipulated in the contracts, and (iii) that the extension is in the public interest. The plans to expand the transmission capacity of the Company, its subsidiaries, jointly controlled and affiliated companies are also subject to the bidding regime provided for in the Concessions Law. Due to the discretion of the Granting Authority for the extension and / or renewal of the concessions, the Company, its subsidiaries, jointly controlled and affiliated companies may not accept the terms and conditions proposed for the renewal of the contracts, in which case the Company may face competition third parties in the process of renewing these concessions. There is no way to guarantee that the current concessions will be renewed on equal and / or more favorable terms than those currently in force. Accordingly, if the Company, its subsidiaries, jointly controlled companies or affiliates do not obtain new concessions or lose any of them, this may have a material adverse effect on the Company’s business, financial condition or results of operations.

The Company cannot guarantee that it will win the bidding processes in which it participates.

The Company conducts, directly or indirectly, its electricity transmission activities based on concession contracts entered into with the Federal Government, and its plans to expand transmission capacity are thus subject, in part, to the Company’s success in bidding processes. . There is no way to guarantee that the Company will win all the bidding processes in which it will participate, which could significantly impact its expansion strategy and expected financial performance. In addition, for the continuity and expansion of its activities, the Company depends on the opening of new bidding processes by the Union and the absence of these auctions may adversely impact the Company’s business.

The outsourcing of part of the activities of the Company, its subsidiaries and jointly controlled companies may adversely affect its results and its financial condition, should such outsourcing be considered as an employment relationship for purposes of the applicable legislation or if it may be considered illegal by the Power Judiciary.

The Company, its subsidiaries and jointly controlled companies have several contracts with companies providing services for the conduct of certain activities. If one or more service providers do not comply with any of their labor, social security and / or tax obligations, the Company and / or its subsidiaries and jointly controlled companies may be liable in a subsidiary manner for the fulfillment of such obligations.

Unavailability of the transmission system and / or disturbances in the quality of services may harm the Company, its subsidiaries, jointly controlled and affiliated companies.

The operation of electricity transmission networks and systems involves several risks, such as operational difficulties and unforeseen interruptions. These events include accidents, breakdown or failure of equipment or processes, performance below expected levels of availability and efficiency of transmission assets and disasters such as explosions, fires, natural phenomena, landslides, sabotage or other similar events. In addition, actions by government authorities responsible for the electricity grid, the environment, operations and other issues can also affect transmission lines.

In addition, other calamities and pandemics, such as the recent outbreak of the new Coronavirus (Covid-19), may affect the Company’s operations due to the decrees issued by municipalities and states related to the restriction of movement of people that may hinder the provision of health services. operation and maintenance in scheduled activities and / or emergency occurrences. This may impair the operation of the transmission lines, causing the penalty in concessionaires’ RAP by ANEEL, due to the unavailability of the transmission line.

The Net Operating Revenue that the Company, its subsidiaries, jointly controlled and affiliated companies earn as a result of the implementation, operation and maintenance of its facilities are related to the availability and continuity of services. In accordance with the respective concession agreements and with the current regulation, the Company, its subsidiaries, jointly controlled and associated companies are subject to the reduction of their respective RAPs and the application, by ANEEL, of certain penalties depending on the level and duration of the unavailability services, as determined by ONS and registered with the Transmission Determination System – SATRA. Accordingly, interruptions in its lines and substations may have a material adverse effect on the Company’s business, financial condition and operating results.

Unfavorable decisions in judicial and administrative proceedings may have a negative effect on the financial condition, the operating result and the image of the Company.

The Company is a party to legal and administrative proceedings, involving several legal and regulatory issues including, but not limited to, civil, environmental, labor, public civil and tax lawsuits. One or more decisions unfavorable to the Company in any judicial or administrative proceeding may have a considerable negative effect on its results. In addition, in addition to the financial provisions and costs of legal fees for advising on these cases, the Company may be required to offer guarantees in court related to such lawsuits, which may adversely affect its financial capacity. There is no guarantee that the provisions will be sufficient to cover the total cost resulting from adverse decisions in judicial and administrative claims. Finally, unfavorable decisions in the course of the aforementioned judicial and administrative proceedings may damage the Company’s image and negatively affect the market’s perception of the Company – which may amplify the negative effects on the issuer’s financial and operating condition. For additional information on the main legal, arbitration or administrative proceedings, see item 4.3 of this Reference Form.

Failure to complete or delay the implementation of projects to expand the electric power transmission capacity of the Company, its subsidiaries and jointly controlled companies, as well as the construction of new transmission lines, may adversely affect the Company's operating and financial results.

The winners of auctions for electric power transmission concessions are responsible for the construction of the facilities for the transmission lines and substations, which are the object of these processes. Additionally, ANEEL authorizes the concessionaires to implement reinforcements and improvements, that is, to install, replace or refurbish equipment in existing transmission facilities, or adapt these facilities, aiming at increasing transmission capacities, increasing the reliability of the National Interconnected System (“SIN”) or the connection of users, after a planning process with the participation of the National Electric System Operator (“ONS”), Energy Research Company (“EPE”) and Ministry of Mines and Energy (“MME” ).

Failure to complete or delay construction of new transmission lines or projects to expand the electricity transmission capacity of the Company, its subsidiaries and jointly controlled companies due to the risks associated with the construction of electricity transmission systems, such as such as the increase in the cost of labor, goods and services, risks of project errors, losses and damages caused to third parties, delay in the processes of expropriation and establishment of administrative easements and in obtaining or renewing the necessary licenses, environmental restrictions and delay in completing the construction of the works, in addition to other factors such as calamities and pandemics, may entail additional operating and / or financial costs, adversely affecting the Company’s planning, operating and financial results.

Eventual delays in the implementation and construction of new energy projects and non-compliance with any of the obligations established in the concession contracts may also result in the imposition of regulatory penalties by ANEEL, which, according to Normative Resolution No. 846/2019 , of June 11, 2019 (“REN nº 846/2019”) and with the terms of the concession contracts, may consist of from notifications and fines to, ultimately, the early maturity of such concessions through administrative processes for the expiry of the contracts, which may have a material adverse impact on the Company’s business.

The construction, expansion and operation of the electricity transmission facilities and other equipment of the Company, its subsidiaries, jointly controlled companies and associates involve certain significant risks that can lead to loss of revenue or increase in expenses.

The construction, expansion and operation of the electricity transmission facilities and other equipment of the Company, its subsidiaries, jointly controlled and associated companies involve many risks, including:

  • Inability to obtain or renew necessary governmental licenses, permits and authorizations;
  • Unexpected environmental and engineering problems;
  • Unexpected delays in the expropriation procedures and establishment of administrative easements;
  • Unavailability of labor and equipment;
  • Supply interruptions;
  • Work stoppages (strikes and claims);
  • Contractual and labor disputes;
  • Social instability;
  • Disasters or pandemics;
  • Weather interferences;
  • Changes in environmental legislation, creating new obligations and costs for the projects;
  • Problems or defects in the manufacture of equipment from suppliers purchased for the construction of transmission lines;
  • Unplanned delays in the construction and operation or unforeseen cost increases;
  • Unavailability of adequate financing;
  • Occurrence of explosions and fires;
  • Insolvency of contractors or service providers;
  • Delays in the supply of raw materials and equipment;
  • Vandalism, sabotage and theft; and
  • Legal and regulatory instability, caused by political factors.

If any of these or other risks materialize, the Company, its subsidiaries, jointly controlled and associated companies may have additional operating and / or financial costs, which may adversely affect its business, financial condition and results of operations in addition to having an impact negatively the progress of the works. Additionally, ANEEL may impose penalties that include significant fines and restrictions on operations, as well as the early termination of concession contracts, in the event of non-compliance with any of the obligations established therein.

The Company can be held responsible for any losses and damages caused to third parties due to the inadequate provision of electricity transmission services.

According to Brazilian law, the Company, as a provider of public services, has strict liability for any direct and indirect losses resulting from inadequate provision of electricity transmission services, such as abrupt interruptions in supply, failures in the operation of transmission or interruptions, disturbances that cannot be attributed to any identified agent in the electrical sector or voltage interference, regardless of intent or fault, once the causal link has been configured.
The Company’s business and operating results may be adversely affected if the Company incurs liability for losses and damages caused to third parties.

The insurance coverage contracted by the Company may be insufficient to compensate for possible damages

The insurance contracted by the Company may be insufficient to fully cover all liabilities that may arise in the course of the Company’s business and for the compensation of any damages. The occurrence of a significant uninsured or indemnifiable claim, partially or in full, or the failure of its subcontractors to comply with indemnity obligations assumed before the Company or to contract insurance, may have an adverse effect on its business, image and finances. In addition, the Company cannot guarantee that it will be able to maintain insurance policies at reasonable commercial rates or on acceptable terms in the future. These factors can have an adverse effect on the Company’s business.

The unilateral early termination of concession contracts by the Granting Authority may prevent the realization of the full value of certain assets and cause the loss of future profits without adequate compensation.

The concessions of the Company, its subsidiaries, jointly controlled companies and associates are subject to early unilateral termination in certain circumstances established by law and the respective concession agreements. In the event of the termination of the concession, the assets subject to the concession will revert to the Granting Authority. We cannot guarantee that, in the event of early termination, any indemnity in the value of assets that have not been fully amortized or depreciated will compensate for the loss of future profit. If the Granting Authority extinguishes the concession contract in the event of default, the amount that would be received by the Company may be reduced to zero, by imposing fines or other penalties, which may have an adverse effect on the Company, its subsidiaries, jointly controlled and associated companies, their business and financial condition.

Since a significant part of the Company's assets is linked to the provision of public services, these assets will not be available for liquidation in the event of bankruptcy nor can they be subject to pledge to guarantee the execution of judicial decisions.

A significant part of the assets of the Company, its subsidiaries, jointly controlled and associated companies is linked to the provision of public services or public utility. These assets will not be available for liquidation in the event of bankruptcy or pledge to guarantee the enforcement of judicial decisions (these assets are called “reversible assets”), since they must be reverted to the Granting Authority, in accordance with the terms of the concessions and with the applicable legislation, to guarantee the non-interruption of the public service. These limitations can significantly reduce the amounts available to the Company’s shareholders and creditors in the event of liquidation, in addition to having a negative effect on the ability of the Company, its subsidiaries, jointly controlled and affiliated companies to obtain financing, which may have an effect adverse effect for the Company, its subsidiaries, jointly controlled and associated companies, their business and financial condition.

The Company may face difficulties in raising funds, in the future, if necessary, through operations in the financial and capital markets.

The Company uses capital market operations to finance a substantial portion of the capital expenditures for its projects and to refinance existing debt. Thus, the Company may face difficulties in raising these funds, such as (i) interest rate fluctuations on loans, financing or debentures; (ii) liquidity restrictions, including early maturity clauses and obligations to maintain financial ratios; (iii) expansion or contraction of the global or Brazilian economy, and (iv) economic crises caused by calamities, natural disasters and pandemics, influencing the credit assessment of counterparties, among other market risks, as described in item 4.2 of this Reference Form . Accordingly, if the Company is unable to raise funds through capital market operations, the Company may have its financial condition affected, as well as its ability to comply with all of its contractual obligations.

The market value and the trading value of the securities issued by the Company may vary and the investor may not be able to resell the securities he holds at a price equivalent to or higher than the price he paid at the time of acquisition.

Investing in securities of companies in emerging markets, such as Brazil, involves a greater risk than investing in securities of companies in more developed countries, and such investments are generally considered speculative in nature. Investments in Brazil, such as investments in securities issued by the Company, are subject to economic and political risks, which include, among others: (i) changes in the regulatory, tax, economic and political scenarios that may affect the ability of investors receive payments, in whole or in part, for their investments; and (ii) restrictions on foreign investments and the repatriation of invested capital.

The Brazilian market is smaller, less liquid and potentially more volatile than the stock markets in the United States and other developed countries. These market characteristics may significantly limit the ability of the holders of the securities issued by the Company to sell them at the desired price and on the desired date, which can significantly affect the market price of the securities issued by the Company. If an active and liquid trading market is not developed or maintained, the trading price of the securities issued by the Company may be negatively impacted.

In addition, the price of securities sold in a public offering is often subject to volatility immediately after it is realized. The market price of the securities issued by the Company may vary significantly as a result of several factors, some of which are beyond the control of the Company. Such factors may negatively influence the trading value of the securities issued by the Company.

Holders of shares or units representing shares issued by the Company may not receive dividends or interest on equity or receive dividends below the mandatory minimum.

In accordance with its Bylaws, the Company must pay shareholders a mandatory annual dividend of not less than 50% of its annual net income, calculated and adjusted under the terms of the Brazilian Corporation Law. The Company’s ability to pay dividends depends on its ability to generate profits. In certain circumstances, the Company may not be able to distribute dividends or distribute them in an amount less than the mandatory minimum dividend. Among them: (i) if the net profit is capitalized, used to offset losses or retained under the terms of the Brazilian Corporation Law; (ii) if the Company’s board of directors informs the Annual Shareholders’ Meeting that the distribution is incompatible with the Company’s financial situation, suspending the mandatory distribution of dividends in a given fiscal year; (iii) if the Company’s cash flow and profit, as well as the distribution of this profit in the form of dividends, including dividends in the form of interest on capital, does not occur, causing the minimum mandatory dividend to exceed realized portion of net income for the year; and / or (iv) in the case of current or future restrictions on financing agreements entered into by the Company regarding the distribution of dividends.

Accordingly, the Company’s shareholders may not receive dividends or interest on equity in such circumstances or may receive dividends below the mandatory minimum.

The request for judicial reorganization of companies of Abengoa group put at risk the Company’s receipt of amounts related to losses involving lawsuits and administrative proceedings relating to the acquisitions.

As described in item 6.3 of this Reference Form, on July 2012, the Company completed the acquisition, with Abengoa, of all the shares in the ATE, ATE II, ATE III, NTE and STE concessions. As a result of the aforementioned acquisitions, any loss incurred by the Company arising from lawsuits and administrative proceedings whose triggering event is prior to said acquisitions of the companies will be borne by Abengoa. However, considering the request for judicial reorganization of Abengoa Group companies, it is impossible to guarantee that the Company will receive any amounts related to losses incurred by the Company, which may have a material adverse impact on the Company’s business. For further information on the relevant proceedings of the Company, refer to item 4.3 of this Reference Form.

The interests of the Company's controlling shareholders may conflict with the interests of the other shareholders.

The Company is controlled by ISA Investimentos e Participações do Brasil SA (“ISA Brasil”) and Companhia Energética de Minas Gerais – Cemig (“CEMIG”) who are signatories to the Company’s shareholders’ agreement, with powers to, among other things, elect the majority of the members of the Company’s Board of Directors, determine the result of any resolution that requires shareholder approval, including in transactions with related parties, corporate reorganizations, disposals, partnerships and time of payment of any future dividends. The Company’s controlling shareholders may be interested in making acquisitions, disposals, partnerships, seeking financing or similar operations that may conflict with the interests of other shareholders, and, even in such cases, the interests of the controlling shareholders may prevail, which it may result in decision making that is less favorable to the Company than to controlling shareholders, damaging the Company’s business.
CEMIG (a company controlled by the State of Minas Gerais) and ISA Brasil, shareholders who are part of the Company’s control block, which, as controlling shareholders of TAESA, exercise substantial influence over the strategic direction of the Company’s business and may have interests that conflict with those of the Company, which may adversely affect the conduct of business.

The Company believes that it is not currently exposed to any risks relating to its shareholders.

The Company's subsidiaries, jointly controlled companies and associates are dependent on outsourced service providers for the operation and maintenance of their facilities.

Some subsidiaries, jointly controlled companies and associates of the Company enter into contracts for the provision of operation and maintenance services, related to their transmission lines and substations, with service providers.

The inability or unwillingness of these third parties to provide the contracted services within adequate terms, in accordance with the contractual specifications, could put the referred subsidiaries, jointly controlled and associated companies in a default situation under the terms of the respective concession contracts and cause relevant adverse effects on the operating results. and the financial capacity of said subsidiaries, jointly controlled and associated companies and, consequently, the Company. Any failures, delays or defects in the provision of services by the contracted suppliers can have a negative effect on the image of the Company and on the relationship with its customers, which may have a negative impact on its business and operations.

In addition, the termination of these operation and maintenance service contracts, or the inability to renew them or to negotiate new contracts with other equally qualified service providers, in a timely manner and with similar prices, may have a material adverse effect on the subsidiaries, in jointly-controlled and associated companies, and, consequently, in the Company.

The Company cannot guarantee that the suppliers of its subsidiaries, jointly controlled companies and affiliates will not use irregular practices.

Due to the large dispersion and outsourcing of the production chain of the Company’s subsidiaries, jointly controlled and associated companies, there is no way to control any irregularities that their suppliers may present. It is possible that some of the suppliers of its subsidiaries, jointly controlled companies and affiliates may have problems with labor issues or those related to sustainability, limiting the production chain and improper safety conditions or even that they may use these irregularities to have a higher cost. low of its products and, if a significant number of said suppliers do so, the Company may have losses in its image, net revenue and operating results, as well as a drop in the value of the securities issued by it.

The structure of some of the Company's subsidiaries, jointly controlled companies and associates may be altered due to the exclusion of real guarantees granted in connection with securities issues and / or financial contracts, which may have an adverse effect for the Company.

The shares or quotas, as the case may be, issued by some of the Company’s subsidiaries, jointly controlled and associated companies were encumbered to guarantee obligations assumed by them and by the Company in connection with issues of securities and / or financial contracts. If these subsidiaries, jointly controlled companies and associates or the Company fail to fulfill their obligations under these documents, their creditors will be able to enforce the respective collateral and, as a result, there may be a decrease in the Company’s shareholding in such subsidiaries, jointly controlled and associated companies or even change of control of the same.

The decrease in the Company’s shareholding in its subsidiaries, jointly controlled companies and associates will result in an immediate decrease in its revenues. In addition, an eventual change of control, direct or indirect, of its subsidiaries, jointly controlled and associated companies may result in the discontinuation of its current management and this fact may affect the conduct of business, adversely affecting the Company.

The Company depends on few suppliers for certain important equipment, and the termination or modification of the agreements with these third parties may harm the Company's business.

Due to the technical specifications of the equipment used in its facilities, the Company, its subsidiaries and its jointly controlled companies have at their disposal few suppliers for certain equipment and, in certain cases, a single supplier. If any supplier discontinues production or interrupts the sale of any equipment purchased by the Company, its subsidiaries and jointly controlled companies, or significantly increases the value of the equipment, they may not be able to purchase such equipment from other suppliers. In this case, the provision of electricity transmission services may be significantly affected, and the Company, its subsidiaries and jointly controlled companies may be required to make unforeseen investments in order to develop or fund the development of new technology for replace the unavailable equipment or acquire higher costs than those currently practiced, which may negatively impact the financial condition and operating results of the Company, its subsidiaries and jointly controlled companies.

The Company, its subsidiaries and jointly-owned subsidiaries depend on third parties to supply the equipment used in their facilities, and problems with one or more suppliers may have a negative impact on the Company's activities, financial condition and operating results.

The Company, its subsidiaries and jointly-owned subsidiaries depend on third parties to supply the equipment used in their facilities and, therefore, are subject to price increases and failures by such suppliers, such as delays in the delivery of the equipment or the delivery of damaged equipment. Such failures may impair activities and have a material adverse effect on the Company’s results.

The outsourcing of the works performed can impact the timely identification of any delays and failures, and, consequently, their correction. Failures, delays or defects in the provision of services by the construction companies hired by the Company, as well as in the supply of the purchased machines or equipment, can have a negative effect on its image and on the relationship with its customers, which may negatively impact the Company’s business and operations. It becomes more critical when a large part of the expansion, emergency, maintenance and field operation actions are carried out by third parties.

In addition, the termination of these equipment supply and / or assembly, installation and construction contracts, or the inability to renew or negotiate new contracts with other suppliers or service providers equally qualified, on time and at similar prices, may also cause a material adverse effect on subsidiaries, jointly-owned subsidiaries and affiliates, and, consequently, on the Company.

Failure to comply with the warranty obligation under the transmission sector contracts may result in default by agents who access the transmission system, resulting in losses for the Company.

The monthly payments made by the agents who access the transmission system are generally guaranteed by Contracts for the Establishment of Guarantees (CCG) and bank guarantee. The guarantee mechanism provided for in the CCGs determines that users of the system give ONS or transmission companies access to bank accounts held with banks indicated in the respective CCG.

In these accounts, a balance of deposits (from invoices paid by users’ final consumers) equivalent to at least 110% of the average value of the last three monthly invoices due to transmission concessionaires must be maintained. If the accessors fail to make the payment within two days of the due date, the ONS or the corresponding company will instruct the bank managing the guarantee to block the bank accounts of the defaulting user, transferring the amounts deposited there, up to the limit of the amounts due (including interest and penalties), to a special account maintained with the managing bank, which will then be in charge of remitting such amounts to the affected broadcasters. If a user of the transmission system fails to make payments due more than three consecutive times (or more than five times in all), the CCG foresees that said user must submit a letter of credit to ONS, with a term of six months and an amount equivalent to two monthly bills for transmission services. Failure to comply with the warranty obligation under the terms of the CCGs may give rise to the termination of the Transmission System Use Agreement (CUST) and Transmission Connection Agreement (CCT) related to such guarantee, with the corresponding default being considered with the involvement of the ANEEL, which may result in losses for the Company.

The crisis of the new Coronavirus (Covid-19) may adversely affect the electric power chain.

Due to the growing expansion of the new Coronavirus (Covid-19) pandemic, economic and social activities have been substantially and negatively affected, greatly reducing the consumption of electricity worldwide. In addition, the Government and ANEEL, in order to protect the Brazilian electricity system against a systemic collapse, have been adopting measures that may adversely affect the entire production chain in the electricity sector. Consequently, distributors may suffer losses with a significant decrease in demand for energy and an increase in defaults and, as they play an important role in passing on sector charges to the rest of the chain, they may have difficulties in honoring their contractual commitments and referring to service charges. transmission, negatively affecting the Company’s revenues and cash flow.

The temporary confiscation or permanent expropriation of the Company's assets may adversely affect its financial conditions and results of operations.

The Federal Government may resume the electric power transmission service in cases of public interest reason, by means of a specific law that authorizes such resumption and payment of prior indemnity. Such reasons include natural disaster, war, significant public disturbances, threats against internal peace or for economic reasons and for other reasons related to national security. The Company cannot guarantee that any indemnity to be received will be adequate considering the investments made or received in a timely manner, and any expropriation may have a material adverse impact on the Company.

Additionally, the Federal Government, as a granting authority, through ANEEL, can also intervene in the concession with the aim of ensuring the adequate provision of the public service, as well as to ensure the faithful compliance with the relevant contractual, regulatory and legal rules by through the administrative intervention procedure. Once the intervention is declared, the granting authority must establish an administrative procedure to prove the determinant causes of the measure and determine responsibilities. If it is proven that the legal requirements of the intervention process are not observed, the service will be immediately returned to the concessionaire. The intervention process or the declaration of termination of any concessions may have a significant adverse effect on its financial condition and results of operations.

The Federal Government has exercised and continues to exercise significant influence over the Brazilian economy. This influence, as well as Brazilian political and economic conditions, may adversely affect the Company's activities and the market price of the securities it issues.

The Federal Government often intervenes in the Brazilian economy and occasionally makes significant changes to its policies and regulations. The Federal Government’s efforts to control inflation and other policies have often involved, among others, raising interest rates, changing tax policy, wage and price controls, fluctuations in exchange rates, exchange controls, restrictions on remittances abroad, and limitations on imports.

The Company’s activities, its financial condition, its operations results, its future business and the market value of the securities issued by it may be materially affected by changes in policies or regulations that involve or affect certain factors, such as:

  • exchange control and limitations on remittances abroad;
  • relevant fluctuations in exchange rates;
  • changes in the tax and charge regime;
  • liquidity of domestic financial and capital markets;
  • interest rates;
  • inflation;
  • monetary policy;
  • development in the energy sector; and
  • other political, social, sanitary and economic developments in or affecting Brazil.

Uncertainty regarding the implementation of changes by the Brazilian government in policies or standards that may affect these or other factors in the future may contribute to economic uncertainty in Brazil and to increase the volatility of the Brazilian securities market and the securities issued abroad by Brazilian companies.

Events and changes in the perception of risks in other countries may affect the market price of global securities, including the market price of the securities we issue.

The market value of the securities of Brazilian issuers is affected by economic and market conditions in other countries, including the United States, European countries, as well as other countries in Latin America and emerging countries. Investor reactions to events in these other countries may have an adverse impact on the market value of the securities of Brazilian issuers. Stock prices traded on the Brazilian capital market, for example, have historically been susceptible to fluctuations in interest rates in the United States, as well as variations in the main stock exchanges in the United States. In addition, crises in other emerging countries may reduce investor interest in securities of Brazilian issuers, including in the Company’s shares and / or units. Such events may adversely affect the market value of the shares and / or units and / or other securities issued by the Company, restrict the Company’s access to the capital market and compromise its ability to finance its operations on favorable terms.

In recent years, there has been an increase in the volatility of the Brazilian market due to, among other factors, uncertainties regarding monetary policy adjustments in the United States and how such adjustments would affect international financial markets, increased risk aversion in emerging countries, as well as uncertainties about macroeconomic and political conditions. In addition, the Company is exposed to instability and volatility in the global financial markets due to its effects on the economic and financial environment, particularly in Brazil, such as economic slowdown, increase in the unemployment rate, reduction in the purchasing power of consumers and the lack of availability of credit.

Such instabilities or volatilities in the global financial markets may further increase the negative effects on the economic and financial environment in Brazil, which could have a material adverse effect on the Company’s business, results of operations and financial condition.

Exchange rate instability can harm the Brazilian economy and, consequently, the Company.

The Brazilian currency has suffered recurrent devaluations against the US dollar and other currencies. The Brazilian government used several exchange rate policies, including sudden devaluations, periodic mini-devaluations (during which the frequency of adjustments varied from daily to monthly), floating exchange market systems, exchange controls and double exchange market with interventions by the Central Bank in the purchase and sale of foreign currency. It cannot be guaranteed that the Real will not suffer depreciation or appreciation against the Dollar.

A situation of exchange rate instability may have a material and adverse effect on the Company’s results. Devaluations of the Real against the Dollar and other major foreign currencies can create additional inflationary pressures in Brazil and lead to interest rate increases, which could negatively affect the Brazilian economy as a whole and, consequently, the Company. Devaluations of the

Real may cause (i) an increase in expenses with financial expenses and operating costs, since the Company, its subsidiaries and jointly controlled entities have payment obligations related to financing and imports indexed to foreign currency fluctuations; and (ii) inflationary pressures that may result in an abrupt increase in inflationary indices, causing increases in the Company’s operating costs and expenses and reducing its operating cash flow, if there is a lag between the time of the referred increase and the annual readjustment of operating revenue. by the IGPM / IPCA approved by ANEEL under the terms of the concession contracts.

Government efforts to combat inflation may slow the growth of the Brazilian economy and have a negative effect on our business.

In the past, Brazil has experienced extremely high inflation rates. Inflation and some measures taken by the Brazilian government in order to control it, combined with speculation about possible governmental measures to be adopted, had a significant negative effect on the Brazilian economy, contributing to the existing economic uncertainty in Brazil and to the increase in volatility of the Brazilian securities market. Successive increases in inflation may increase the Company’s costs and expenses and consequently adversely affect its financial performance, as a whole.

Any future Federal Government measures, including lower interest rates, intervention in the foreign exchange market and measures to adjust or fix the value of the real, may trigger increases in inflation, adversely affecting the overall performance of the Brazilian economy. If Brazil experiences high inflation in the future, the annual revenue adjustment mechanism of the Company, its subsidiaries, jointly-controlled and associated companies based on inflation, provided for in their respective concession agreements, may not be sufficient to protect them entirely against the effects of increased inflation, which may adversely affect our operating margins.

In addition, in the event of an increase in inflation, the Federal Government may choose to significantly raise official interest rates. The increase in interest rates may impact not only the cost of borrowing new loans by the Company, but also the cost of its current indebtedness, which will increase its financial expenses. This increase, in turn, may adversely affect the ability to pay obligations assumed by the Company, as it will reduce its cash availability. In addition, fluctuations in national interest rates and inflation, which may adversely affect the Company due to the existence of assets and liabilities indexed to the variation in the SELIC, CDI rates and the IPCA and IGP-M indexes. On the other hand, a significant reduction in the CDI or inflation may negatively affect the revenue generated from the Company’s financial investments and correction of the balance related to the concession’s financial assets.

Any further downgrade in Brazil's credit rating could adversely affect the cost of future debt issues and the trading price of the Company's Units.

Credit ratings affect the risk perception of investments and, as a result, the yields required on future debt issues in the capital market. Risk rating agencies regularly assess Brazil and its sovereign ratings, based on several factors, including macroeconomic trends, physical and budgetary conditions, debt metrics and the prospect of changes in any of these factors.
Any downgrade of Brazilian sovereign credit ratings could increase the perception of investment risk and, as a result, increase the cost of future debt issues and adversely affect the Company’s securities trading price.

ANEEL may terminate the concessions agreements of the Company, its subsidiaries, jointly subsidiaries and affiliates before maturity of their terms, through an administrative proceeding.

Electric power transmission concessions are subject to termination by ANEEL, before maturity of their respective terms, through an administrative proceeding. Some circumstances that may lead to termination: (i) lack of provision of services by the concessionaire for over 30 (thirty) calendar days, without submitting an option acceptable to ANEEL, after ONS’ expression; (ii) declaration of bankruptcy or the dissolution of concessionaires; (iii) if ANEEL determines, through an expropriation procedure, that the termination of any of its concessions would be due to public interest, as defined in a specific authorizing law; or (iv) declaration of the concession expiration, if it is ascertained in the administrative proceeding that the agreement is not executed by the concessionaire, in the cases provided for in article 38 of the Concession Law (such as stoppage of services, loss of necessary qualification to the provision of the services and tax evasion).

In the event that the concession agreements of the Company or any of its subsidiaries, jointly subsidiaries and affiliates are terminated by ANEEL prior to their respective due dates, there is no guarantee that the Company, its subsidiaries, jointly subsidiaries and affiliates will receive sufficient indemnification amounts to fully recover the amount of their investments. The early termination by ANEEL of the concessions agreements of the Company or any of its subsidiaries, jointly subsidiaries and affiliates or the insufficiency of the indemnification for the investments made may negatively impact the Company’s operations results and payment capacity.

The Granting Authority has discretion to determine the terms and conditions applicable to the concessions granted to the Company, its subsidiaries, jointly subsidiaries and affiliates. Accordingly, it is possible that the Company and its subsidiaries, jointly subsidiaries and affiliates may be subject to unplanned increases in their costs.

The Company, its subsidiaries, jointly subsidiaries and affiliates are inserted in the Electrical Sector, in an environment highly regulated by the Federal Government and supervised by it, through ANEEL, also subject to the compliance with the determinations of other bodies and other regulatory and environmental authorities. Thus, the Company, its subsidiaries, jointly subsidiaries and affiliates are subject to many regulations including environmental, occupational health and safety permits, laws and standards. In the event of significant changes in the understanding of said bodies, resulting in future changes in the applicable laws, regulations and arrangements or changes in the regulatory enforcement or interpretation, resulting in changes in the legal requirements or in the terms of existing permits, authorizations, licenses and agreements applicable to the Company, its business, operations results and financial condition would suffer significant adverse impact.

The non-compliance with any of the provisions of these environmental, occupational health and safety permits, laws and standards may result in the application of relevant penalties, payment of fines and indemnities in significant amounts, revocation of environmental licenses or suspension of activities, which may cause a material adverse effect on the Company’s business. There are also requirements in the agreements that determine the application of a certain percentage of the concessionaires’ revenue in research and development of the Brazilian electric sector, pursuant to Law 9.991/00, of July 24, 2000, and to specific regulation, the agents being responsible for the (full or partial) re-establishment of the amounts invested in projects, in the case of charges in the final evaluations made by the Regulator.

The Company may have its financial condition and operations results adversely affected if (i) it has to make additional investments as a result of a measure not provided for in the applicable legislation, regulations or agreements; or (ii) unilateral measures are imposed by those authorities.

Virtually all of the Company’s, subsidiaries’, jointly subsidiaries’ and affiliates’ revenues are derived from the RAP received in exchange for the implementation, operation and maintenance of its electric power transmission facilities. Some extraordinary events, such as, for example: the creation of new fees, taxes and/or charges, or investments in transmission lines and facilities, duly approved by ANEEL, as reinforcements and improvements, , if your earnings are not enough, may generate additional costs not initially planned by the Company. If Company’s costs increase or its revenues decrease significantly or if it has to make additional investments as a result of a measure not provided for in the applicable legislation, regulations or agreements, or as a result of unilateral measures, by these authorities, the financial condition of the Company and its operations results may be adversely affected.

In addition, the Federal Government may in future adopt stricter rules applicable to the industry activities, which may include, for example, the installation of new equipment, causing the Company to incur additional costs and/or investments to comply with such rules. Accordingly, such events may adversely affect the Company’s financial condition and operations results.

The Company, its subsidiaries, jointly controlled companies and affiliates may be punished by ANEEL for non-compliance with its concession contracts and applicable regulations.

The provision of electricity transmission services by concessionaires is carried out in accordance with the respective concession contracts and applicable regulations. In the event of failure to comply with any provision of the respective concession contracts or provisions provided for in the applicable regulation, ANEEL may impose penalties on the Company, its subsidiaries, jointly controlled and affiliated companies. Depending on the severity of the breach, the applicable penalties may include: (i) warning; (ii) fines for non-compliance, which, depending on the infraction, vary from 0.01% to 2% on the value of the concessionaire’s Net Operating Revenue (“ROL”), corresponding to the last 12 months prior to the drawing up of the tax assessment notice; (iii) embargoes on the construction of new facilities or equipment; (iv) restrictions on the operation of existing facilities and equipment; (v) temporary suspension of participation in bidding processes for new concessions for up to two years; (vi) ANEEL’s intervention in the concessions or authorizations granted; and (vii) termination and expiry of the concession.

In addition, the Granting Authority has the prerogative to extinguish the concessions of concessionaires in the electricity sector before the end of the term, in the event of bankruptcy or dissolution, or by means of expropriation and forfeiture, by carrying out an administrative procedure. It is possible that ANEEL will apply penalties for non-compliance with concession contracts by concessionaires in the electricity sector or terminate concessions in advance, if the concessionaire has given cause or for the good of the Union. In addition, delays in the implementation and construction of new facilities in relation to the schedule may also trigger the imposition of regulatory sanctions by ANEEL, which, according to REN nº 846/2019, may vary from warnings to early termination of concessions.

Also, the sectoral agent that fails to submit to ANEEL’s prior consent request to constitute the emerging rights, in any capacity, or assets linked to the concession, permission or authorization, in accordance with item “c”, item VII of Art 12 of REN nº 846/2019, subject to the imposition of a fine penalty of up to 1% on the value of the ROL, corresponding to the last 12 months prior to the drawing up of the infraction notice, in the cases of concessionaires, permissionaires and authorized electric energy installations and services.

In addition, the indemnity to which the concessionaires in the electricity sector will be entitled at the end of their respective concessions for unamortized investments may not be sufficient to fully settle their liabilities, and the payment may be postponed for many years (for more For more information, see risk factor “ANEEL may terminate the concession contracts of the Company or its subsidiaries, jointly controlled and affiliated companies before the expiration of their terms”). If the concession contracts are terminated or extinguished due to the fault of the electricity sector concessionaires, the amount of the payment due may be significantly reduced by imposing fines or other penalties.

Accordingly, the application of fines or penalties or the early termination of concessions by the Company, its subsidiaries, jointly controlled companies and associates may have significant adverse effects on the financial condition and operating results of the Company, its subsidiaries, jointly controlled companies. and related companies.

Changes in Brazilian tax legislation or conflicts in its interpretation may adversely affect the operating results of the Company, its subsidiaries, jointly controlled and associated companies.

The Federal, State and Municipal Governments regularly implement amendments to the tax regime that affect the Company, its subsidiaries, jointly subsidiaries and affiliates. These amendments include the current tax rates and/or, occasionally, the collection of temporary taxes, whose collection is associated with certain governmental specific purposes. Some of these measures may result in an increase in the tax burden of the Company, its subsidiaries, jointly subsidiaries and affiliates, which may in turn influence the profitability and, consequently, the financial result of the Company, its subsidiaries, jointly subsidiaries and affiliates.The Company cannot ensure that it will be able to maintain the projected cash flow and profitability after any increase in the Brazilian taxes applicable to the Company and its operations.There is no guarantee that the Company, its subsidiaries, jointly subsidiaries and affiliates will be able to obtain a timely and full adjustment of their RAP, which may cause material adverse effect on the Company, its subsidiaries, jointly subsidiaries and affiliates. In addition, tax authorities may interpret some tax laws differently from the Company’s interpretation. If there is an interpretation by tax bodies other than that on which Company relied to conduct its transactions, the Company and its results can be adversely affected.

The Company, its subsidiaries, jointly subsidiaries and affiliates operate in a highly regulated environment and any changes in the regulation of the electric sector may adversely affect the electric power companies.

The activities of the Company, its subsidiaries, jointly controlled and affiliated companies are highly regulated and supervised by the Federal Government, through MME, ANEEL, ONS and other regulatory authorities. These authorities have historically exercised a high degree of influence over the activities of the Company, its subsidiaries, jointly controlled and affiliated companies. MME, ANEEL and ONS have discretionary powers to implement and change policies, interpretations and rules applicable to various aspects of the activities of the Company, its subsidiaries, jointly controlled and affiliated companies, especially operational, maintenance and safety aspects, as well as aspects related to the remuneration and inspection of the activities of the Company, its subsidiaries, jointly controlled and associated companies. Any significant regulatory measure by the competent authorities may impose a material burden on the activities of the Company, its subsidiaries, jointly controlled and associated companies and cause a material adverse effect. Recently, Aneel released a series of measures adopted in the electricity sector to minimize the effects of combating the spread of covid-19 that may adversely affect the collection of the electricity sector, impacting the Company’s revenue. The main commercial activities, the implementation of the growth strategy and the conduct of the Company’s activities may be adversely affected by government actions, among which: (a) change in the legislation applicable to the Company’s business, its subsidiaries, jointly controlled companies and affiliates, including, but not limited to, tax, labor and environmental legislation; (b) discontinuity and / or changes in the concession programs; (c) imposition of stricter criteria for qualifying in future tenders; (d) discretion of the granting authority in the process of restoring the economic and financial balance of the concession contract;

Additionally, the Company, its subsidiaries, jointly controlled companies and affiliates cannot guarantee that the actions that will be taken in the future by the federal and / or state governments in relation to the development of the Brazilian electricity system will not negatively impact the activities of the Company, its subsidiaries, jointly controlled and affiliated companies and nor to what extent, such actions may adversely affect it.

If the Company, its subsidiaries, jointly controlled companies and associates are required to proceed in a substantially different manner than that established in its business plan, its financial and operating results may be adversely affected.

Not applicable, since the Company, its subsidiaries, jointly subsidiaries and affiliates operate only in the Brazilian territory.

The Company, its subsidiaries, jointly controlled companies and affiliates are subject to extensive legislation and regulation in the environmental sector, which may adversely affect them.

The Company, its subsidiaries, jointly controlled companies and affiliates are subject to extensive legislation and regulation in the environmental sector related, among other aspects, to atmospheric emissions, waste management and interventions in specially protected areas. The Company needs licenses and authorizations from government agencies to conduct its activities. In the course of the environmental licensing process, the licensing agency may delay the analysis of requests for the issuance or renewal of licenses and authorizations necessary for the Company’s business, or even reject these requests, requiring compliance with complex and onerous conditions, which may delay the implementation of the Company’s projects, negatively impacting the project schedule and the costs of its implementation. The Company’s inability to meet the technical requirements (conditions) established by such environmental agencies in the course of the environmental licensing process, may harm, or even prevent, as the case may be, the installation and operation of the projects, as well as the development of activities of the Company, which may adversely affect its operating results.

In the event of violation or non-compliance with such laws, regulations, licenses and authorizations, as well as obligations assumed in terms of conduct adjustment or terms of environmental commitment or in judicial agreements, the Company may suffer administrative sanctions, such as fines, interdiction activities, cancellation of licenses and revocation of authorizations, as well as criminal sanctions (including its administrators), which may materially and adversely affect our reputation, image, revenue and operating results. The Public Prosecution Service may initiate a civil investigation and / or, from the outset, promote a public civil action aimed at compensating for any damages caused to the environment and third parties.

Additionally, in the civil sphere, the environmental damage caused, directly or indirectly, by the Company, its subsidiaries, jointly controlled and associated companies may imply joint and several liability, this means that the obligation to repair the damage caused may affect everyone, directly or indirectly. indirectly involved, regardless of the agents’ proof of guilt or fraud. As a consequence, environmental damages, even if they result from activity carried out by contracted third parties, may generate liability for the repair to the Company, at which time the company that has better financial conditions to do so may be required to remedy or pay damages. it, subsequently having the right of recourse against the other companies involved. In Brazilian law, there is no provision for a ceiling or limit on the amount to be fixed as an indemnity for environmental damage, which will be proportional to the damage caused. Still, the doctrine and the jurisprudence have a majority understanding that the repair and / or indemnification of environmental damages is not subject to prescription, as it involves diffuse and collective interests, which deserve to be widely protected.

Violations of environmental legislation may also result in administrative penalties, such as fines provided for in Federal Decree No. 6,514 / 2008, in the amount of up to R $ 50 million in more serious cases, when major environmental damage and / or with risk to human health. Such fines are applicable in double or triple, in case of recurrence. Among others, administrative penalties may also involve warning, work or activity embargo, demolition of the work or partial or total suspension of its activities, especially when there is an imminent danger to public health, serious risk of environmental damage or in cases of recalcitrance, where the fines previously imposed have not been sufficient to correct the offender’s conduct. It should be noted that administrative and criminal sanctions will be applied regardless of the obligation to repair the damage caused to the environment and to affected third parties. The environmental legislation also provides for the possibility of disregarding the legal personality, whenever this represents an obstacle to the recovery of damages caused to the quality of the environment, and may give rise to the liability of the Company’s partners and administrators.

Government agencies or other authorities may also issue new stricter rules or seek more restrictive interpretations of existing laws and regulations, forcing the Company to spend additional resources on environmental adequacy and / or on licensing areas that will be used for the implementation of new projects.