Brazil's industrial demand for electricity remained weak, as the economy struggles to fully exit the global downturn. During September 2009, the country's industrial power demand totaled 14,623 GWh, down 6.1% y-o-y. Steel mills and other heavy industries in the country are still not operating at full capacity and thus their demand for energy is low. CEMIG's electricity sales volume sold to industrial customers declined 13.3% y-o-y to 5,538.8 GWh in 2Q 09. However, growing electricity demand from the residential sector continues to drive CEMIG's overall volumes and revenues. CEMIG sold 2,421.5 GWh (+7.1% y-o-y) to residential customers during 2Q 09. We expect this segment to continue to perform well. Brazil's residential power consumption in September 2009 increased 7.6% yo- y to 8,411 GWh, benefiting from government programs to bring electricity to poorly served regions of the country such as the northeast and rural areas. Moreover, electricity demand from the commercial sector is expected to grow steadily, going forward driven by growth in the country’s services oriented businesses. The hike in electricity tariff rates announced in April 2009 will further benefit CEMIG's revenue growth in FY 2009. We forecast FY 2009 revenues at BRL11.2 bn, up 3.0% y-o-y. We expect CEMIG’s FY 2010 revenues to increase 7.2% y-o-y given our expectation of an economic revival in the latter half of the year, leading to an increase in demand for electricity. We maintain our positive outlook for the company’s future performance, given the increase in tariffs permitted by the Brazilian energy regulatory authority (ANEEL) coupled with our anticipated growth in electricity demand from the residential sector.

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