Companhia Energetica de Minas Gerais (CIG), also known as CEMIG, recently announced that the company will participate in a project to construct a gas pipeline connecting São Paulo and Uberaba. Primarily the pipleine will serve the Ammonia Plant, which will be built by Petroleo Brasileiro SA, or Petrobras (PBR) by 2013.
The company has signed a protocol of intentions with Petrobras and the Government of the State of Minas Gerais in order to participate in the development of technical and feasilbility studies. The company will also help in the implantation of the gas pipeline.
CEMIG is one of the largest integrated electric utilities in Brazil, having more than 6,896 megawatts of installed generation capacity and deriving approximately 97% from hydroelectric power.
The company is engaged in natural gas distribution through its subsidiary, Gasmig. The natural gas distribution arm serves Metropolitan Belo Horizonte, Barbacena, Juiz de Fora, the Steel Valley and the South of Minas.
The company is evidently well placed to benefit from the increasing electricity demand in Brazil. Electricity sold in the fiscal year 2010 improved 9.0% year over year to 66,255 GWh versus 60,909 GWh in the year-ago period due to higher demand in all consumer categories.
Rising operating expenses, on the other hand, hav been a problem for the company. In the fiscal year 2010, operating expenses jumped 8% year over year due to rise in expenses related to purchased energy, operating provisions, contract services, employee participations, material, gas purchased for resale, cost from operation, and other expenses.
The company is in stiff competition with its peers like Companhia Paranaense de Energia (ELP), EDP-Energias de Portugal, S.A. and Eletropaulo Metropolitana Eletricidade de São Paulo SA.
We currently maintain a Neutral rating on the stock.
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