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33. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Tables)

12 Months Ended

Dec. 31, 2019

Disclosure of detailed information about financial instruments [line items]

Schedule of financial instruments and fair value

The main financial instruments, classified in accordance with the accounting principles adopted by the Company, are as follows:

		Level				2019								2018
						Balance				Fair value				Balance				Fair value
Financial assets
Amortized cost (1)
Marketable securities – Cash investments		2				102				102				117				117
Accounts receivables from Customers and traders; Concession holders (transmission service)		2				4,601				4,601				4,173				4,173
Restricted cash		2				12				12				91				91
Accounts receivable from the State of Minas Gerais (AFAC)		2				115				115				246				246
Concession financial assets – CVA (Parcel ‘A’ Costs Variation Compensation) Account and Other financial components		3				882				882				1,081				1,081
Reimbursement of tariff subsidies		2				97				97				91				91
Low-income subsidy		2				30				30				30				30
Escrow deposits		2				2,540				2,540				2,502				2,502
Concession grant fee – Generation concessions		3				2,468				2,468				2,409				2,409
Indemnifiable receivable – Transmission						1,281				1,281				1,296				1,296
Accounts receivable – Renova		2				–				–				532				532
Reimbursement – Decontracting of supply		2				–				–				97				97
Reimbursement – Assignment of contract						–				–				10				10
						12,128				12,128				12,675				12,675
Fair value through profit or loss
Cash equivalents – Cash investments						326				326				783				783
Marketable securities
Treasury Financial Notes (LFTs)		1				94				94				254				254
Financial Notes – Banks		2				557				557				435				435
Debentures		2				–				–				7				7
						977				977				1,479				1,479
Derivative financial instruments (Swaps)		3				1,691				1,691				813				813
Derivative financial instruments (Ativas and Sonda Put options)		3				3				3				4				4
Concession financial assets – Distribution infrastructure		3				483				483				396				396
Indemnifiable receivable – Generation		3				816				816				816				816
						3,970				3,970				3,508				3,508
						16,098				16,098				16,183				16,183
Financial liabilities
Amortized cost (1)
Loans, financing and debentures		2				(14,777	)			(14,777	)			(14,772	)			(14,772	)
Debt with pension fund (Forluz)		2				(566	)			(566	)			(652	)			(652	)
Deficit of pension fund (Forluz)		2				(550	)			(550	)			(378	)			(378	)
Concessions payable		3				(20	)			(20	)			(19	)			(19	)
Suppliers		2				(2,080	)			(2,080	)			(1,801	)			(1,801	)
Leasing transactions (2)		2				(288	)			(288	)			–				–
Advances from customers		2				–				–				(79	)			(79	)
						(18,281	)			(18,281	)			(17,701	)			(17,701	)
Fair value through profit or loss
Derivative financial instruments (SAAG put options)		3				(483	)			(483	)			(419	)			(419	)
						(483	)			(483	)			(419	)			(419	)
						(18,764	)			(18,764	)			(18,120	)			(18,120	)

(1)	On December 31, 2019 and 2018, the book values of financial instruments reflect their fair values.
(2)	Leasing transactions recognized in accordance with IFRS 16. For more information see Note 21.

Schedule of net liabilities in relation to its equity

On December 31, 2019 and 2018, the options values were as follows:

		2019				2018
Put option – SAAG		483				419
Put / call options – Ativas and Sonda		(3	)			(4	)
		480				415

Schedule of changes in value of options

The changes in the value of the options are as follows:

Balance at December 31, 2016		196
Variation in fair value		121
Reversals		(5	)
Balance at December 31, 2017		312
Adjustment to fair value		107
Balance at December 31, 2018		419
Adjustment to fair value		64
Balance at December 31, 2019		483

Schedule of changes in value of options - the difference between esimated fair value for assets and corresponding exercise price

The change in the value of the options – the difference between the estimated fair value for the assets and the corresponding exercise price, on December 31, 2018 and 2017 is as follows:

Balance at December 31, 2016		1,150
Variation in fair value		187
Written down, due to exercise of Put		(830	)
Balance at December 31, 2017		507
Variation in fair value		48
Written down, due to exercise of Put		(555	)
Balance at December 31, 2018		–

Schedule of derivative instruments contracted

This table presents the derivative instruments contracted by Cemig GT as of December 31, 2019 and 2018.

Assets (1)

Liability (1)

Maturity period

Trade market

Notional amount (2)

Unrealized gain / loss

Unrealized gain / loss

Carrying amount 2019

Fair value 2019

Carrying amount 2018

Fair value  2018

US$ exchange variation + Rate (9.25% p.y.)

Local currency + R$ 150.49% of CDI

Interest:     Half-yearly Principal:     Dec. 2024

Over the counter

US$1,000

814

1,235

679

627

US$ exchange variation + Rate (9.25% p.y.)

Local currency + R$125.52% of CDI

Interest:     Half-yearly Principal:     Dec. 2024

Over the counter

US$500

108

456

33

186

922

1,691

712

813

1)

For the US$1 billion Eurobond issued on December 2017: (i) for the principal, a call spread was contracted, with floor at R$ 3.25/US$ and ceiling at R$ 5.00/US$; and (ii) a swap was contracted for the total interest, for a coupon of 9.25% p.a. at an average rate equivalent to 150.49% of the CDI. For the additional US$500 issuance of the same Eurobond issued on July 2018: (1) a call spread was contracted for the principal, with floor at R$ 3.85/US$ and ceiling at R$ 5.00/US$; and (2) a swap was contracted for the interest, resulting in a coupon of 9.25% p.a., with an average rate equivalent to 125.52% of the CDI rate.

2)

In millions of US$.

Schedule of exposure to exchange rates

Cemig and its subsidiaries are exposed to the risk of appreciation in exchange rates, with effect on loans and financing, suppliers, and cash flow. The net exposure to exchange rates is as follows:

		2019								2018
Exposure to exchange rates		Foreign currency				R$				Foreign currency				R$
US dollar
Loans and financing		1,516				6,110				1,518				5,882
Suppliers (Itaipu Binacional)		60				243				70				268
		1,576				6,353				1,588				6,150
Net liabilities exposed						6,353								6,150

Schedule of exposure to exchange rates

The Company has prepared a sensitivity analysis of the effects on the Company’s net income arising from depreciation of the Real exchange rate by 25%, and by 50%, in relation to this ‘probable’ scenario.

Risk: foreign exchange rate exposure		Base Scenario				‘Probable’ scenario US$1=R$5.20				‘Possible’ scenario Appreciation 25.00% US$1= R$6.50				‘Remote’ scenario Appreciation 50.00% US$1=R$7.80
US dollar
Loans and financings		6,110				7,883				9,853				11,824
Suppliers (Itaipu Binacional)		243				313				392				470
		6,353				8,196				10,245				12,294
Net liabilities exposed		6,353				8,196				10,245				12,294
Net effect of exchange rate fluctuation		-				1,843				3,892				5,941

Schedule of risk of increase in inflation

This table presents the Company’s net exposure to inflation index:

Exposure to increase in inflation		2019				2018
Assets
Concession financial assets related to Distribution infrastructure - IPCA (1)		483				396
Receivable from Minas Gerais state government (Debt recognition agreement) – IGPM index (Note 13 and 32)		–				247
Receivable from Minas Gerais state government (AFAC) – IGPM (Note 13 and 32)		115				246
Receivable for residual value – Transmission – IPCA (Note 16)		2,468				1,296
Concession Grant Fee – IPCA (Note 16)		1,281				2,409
		4,347				4,594
Liabilities
Loans, financing and debentures – IPCA and IGP-DI (Note 24)		(4,730	)			(3,791	)
Debt with pension fund (Forluz) – IPCA		(566	)			(652	)
Deficit of pension plan (Forluz) – IPCA		(550	)			(378	)
		(5,846	)			(4,821	)
Net assets (liabilities) exposed		(1,499	)			(227	)

(1) Portion of the concession financial assets relating to the Regulatory Remuneration Base of Assets ratified by the regulator (Aneel) after the 3^rd tariff review cycle.

Sensitivity analysis

In relation to the most significant risk of reduction in inflation index, reflecting the consideration that the Company has more assets than liabilities indexed to inflation indices, the Company estimates that, in a probable scenario, at December 31, 2020 the IPCA inflation index will be 1.31% and the IGPM inflation index will be 4.23%. The Company has prepared a sensitivity analysis of the effects on its net income arising from an increase in inflation of 25% and 50% in relation to the ‘probable’ scenario.

		2019				2020
Risk: increase in inflation		Amount Book value				‘Probable’ scenario IPCA 1.31% IGPM 4.23%				‘Possible’ scenario (25%) IPCA 1.64% IGPM 5.29%				‘Remote’ scenario (50%) IPCA 1.97% IGPM 6.35%
Assets
Concession financial assets related to Distribution infrastructure – IPCA (1)		483				489				491				493
Accounts receivable from Minas Gerais state government (AFAC) – IGPM index (Note 32)		115				120				121				122
Receivable for residual value – Transmission – IPCA (Note 16)		2,468				2,500				2,508				2,517
Concession Grant Fee – IPCA (Note 16)		1,281				1,298				1,302				1,306
		4,347				4,407				4,422				4,438
Liabilities
Loans, financing and debentures – IPCA and IGP-DI		(4,730	)			(4,792	)			(4,808	)			(4,823	)
Debt agreed with pension fund (Forluz) – IPCA		(566	)			(573	)			(575	)			(577	)
Deficit of pension plan (Forluz)		(550	)			(557	)			(559	)			(561	)
		(5,846	)			(5,922	)			(5,942	)			(5,961	)
Net liability exposed		(1,499	)			(1,515	)			(1,520	)			(1,523	)
Net effect of fluctuation in IPCA and IGP–M indices						(16	)			(21	)			(24	)

(1) Portion of the Concession financial assets relating to the Regulatory Remuneration Base of Assets ratified by the regulator (Aneel) after the 4^rd tariff review cycle.

Schedule of flow of payments of the company's obligations for debt agreed, financings and debentures for floating and fixed rates including the interest specified in contracts

The flow of payments of the Company’s obligation to suppliers, debts with the pension fund, loans, financing and debentures, at floating and fixed rates, including future interest up to contractual maturity dates, is as follows:

		Up to 1 month				1 to 3 months				3 months to 1 year				1 to 5 years				Over 5 years				Total
Financial instruments at (interest rates):
- Floating rates
Loans, financing and debentures		36				1,119				1,335				14,572				1,912				18,974
Onerous concessions		–				–				2				9				13				24
Debt with pension plan (Forluz) (Note 26)		12				24				111				557				–				704
Deficit of the pension plan (FORLUZ) (Note 26)		5				11				123				212				630				981
		53				1,154				1,571				15,350				2,555				20,683
- Fixed rate
Suppliers		1,786				293				1				–				–				2,080
		1,839				1,447				1,572				15,350				2,555				22,763

Schedule of credit exposure

Banks that exceed these thresholds are classified in three groups, by the value of their equity; and within this classification, limits of concentration by group and by institution are set:

Group	Equity		Concentration		Limit per bank  (% of equity)*
A1	Over R$ 3.5 billion		Minimum of 50%		Between 6% and 9%
A2	R$ 1.0 billion to R$ 3.5 billion		Maximum 30%		Between 5% and 8%
B	R$ 400 to R$ 1.0 billion		Maximum 30%		Between 5% and 7%

* The percentage assigned to each bank depends on individual assessment of indicators, e.g. liquidity, and quality of the credit portfolio.

Schedule of net liabilities in relation to its equity

This table shows comparisons of the Company’s net liabilities and its Equity on December 31, 2019 and 2018:

		2019				2018
Total liabilities		34,035				43,916
(–) Cash and cash equivalents		(536	)			(891	)
(–) Restricted cash		(12	)			(91	)
Net liabilities		33,487				42,934
Total equity		15,891				15,939
Net liabilities / equity		2.11				2.70

Fair value hedges [member]

Disclosure of detailed information about financial instruments [line items]

Schedule of fair value of derivative hedge instrument

Company has measured the effects on its net income of reduction of the estimated fair value for the ‘probable’ scenario, analyzing sensitivity for the risks of interest rates, exchange rates and volatility changes, by 25% and 50%, as follows:

		Base scenario Dec. 31, 2019				‘Probable’ scenario:				‘Possible’ scenario exchange rate depreciation and interest rate increase 25%				‘Remote’ scenario: exchange rate depreciation and interest rate increase 50%
Swap (asset)		6,427				7,193				6,087				5,052
Swap (liability)		(5,774	)			(5,682	)			(5,794	)			(5,896	)
Option / Call spread		1,038				1,705				1,183				481
Derivative hedge instrument		1,691				3,216				1,476				(363	)

Interest rate risk [member]

Disclosure of detailed information about financial instruments [line items]

Schedule of estimation of company interest rate

The Company is exposed to the risk of increase in Brazilian domestic interest rates.  This exposure occurs as a result of net liabilities indexed to variation in interest rates, as follows:

Risk: Exposure to domestic interest rate changes		2019				2018
Assets
Cash equivalents – Cash investments (Note 6) – CDI		326				783
Marketable securities (Note 7) – CDI / SELIC		753				813
Accounts receivable – Renova (Note 32) – CDI		–				532
Restricted cash – CDI		12				91
CVA and in tariffs (Note 16) – SELIC		882				1,081
Reimbursement due to termination of contract (Note 32) – SELIC / CDI		–				97
Reimbursement related to cancelled contracts – CDI		–				10
		1,973				3,407
Liabilities
Loans, financing and debentures (Note 24) – CDI		(3,773	)			(4,920	)
Loans, financing and debentures (Note 24) – TJLP		(244	)			(249	)
Advance sales of energy supply - CDI		–				(79	)
		(4,017	)			(5,248	)
Net liabilities exposed		(2,044	)			(1,841	)

In relation to the most significant interest rate risk, Company estimates that, in a probable scenario, at December 31, 2020 Selic and TJLP rates will be 1.50% and 4.95%, respectively.  The Company has made a sensitivity analysis of the effects on its net income arising from increases in rates of 25% and 50% in relation to the ‘probable’ scenario. Fluctuation in the CDI rate accompanies the fluctuation of Selic rate.

		2019				2020
Risk: Increase in Brazilian interest rates		Book value				‘Probable’ scenario Selic 1.50% TJLP 4.95%				‘Possible’ scenario Selic 1.88% TJLP 6.19%				‘Remote’ scenario Selic 2.25% TJLP 7.43%
Assets
Cash equivalents (Note 6)		326				331				332				333
Marketable securities (Note 7)		753				764				767				770
Restricted cash		12				12				12				12
CVA and Other financial components – SELIC		882				895				899				902
		1,973				2,002				2,010				2,017
Liabilities
Loans and financing (Note 24) – CDI		(3,773	)			(3,830	)			(3,844	)			(3,858	)
Loans and financing (Note 24) – TJLP		(244	)			(256	)			(259	)			(262	)
		(4,017	)			(4,086	)			(4,103	)			(4,120	)
Net assets (liabilities) exposed		(2,044	)			(2,084	)			(2,093	)			(2,103	)
Net effect of fluctuation in interest rates						(40	)			(49	)			(59	)

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