Brazil’s industrial demand for electricity has yet to pick up after the country witnessed a steep decline in economic activity during the first half of 2009 due to the global financial crisis. During 2009, electricity demand from the industrial sector in Brazil declined 8% y-o-y. Although positive growth in electricity consumption from residential and commercial sector partially offset the negative impact from the Industrial sector, total electricity consumption in the country declined 1.1% y-o-y to 388,204 GW hrs in 2009 (Source: EPE, the government’s energy research company). Gradual economic recovery would lead to positive growth in total electricity consumption in Brazil during 2010. However, growth would be moderate for the Industrial sector, the largest consumer sector of electricity. CEMIG’s electricity sales volume sold to industrial customers declined 21.5% y-o-y to 5,619 GWh in 3Q 09. CEMIG sold 2,391 GWh (+7.0% y-o-y) to residential customers and 1,456 GWh (+3.5% y-o-y) during 3Q 09. CEMIG’S industrial sales volume in 4Q 09 is likely to be down y-o-y while we expect modest growth during 2010. Electricity demand from Residential and Commercial sectors is epected continue to grow steadily. With increased personal and material expenses during 2009, we expect CEMIG to register EBITDA margin of 35.2% in 2009 compared to 37.6% in 2008. We forecast moderate margin improvement going forward with anticipated growth in demand for electricity and the company’s revenues. We maintain our neutral outlook for CEMIG’s preferred stock.

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