Economy & Energy
Ano XII-No 78
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Capital Productivity in the Brazilian Electrical Sector

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Capital Productivity in the Brazilian Electric Sector



                                            Lothario O. Deppe, M.Sc., Nucl.E.

Deppe Consultoria em Engenharia Ltda

Dr. Carlos Feu Alvim

Economia & Energia - e&e, OSCIP


1 – Introdução

This paper is a partial output of the work performed under the Term of Partnership No 13.0017.00/2005 between the Brazilian Science and Technology Ministry (MCT) and the organization Economy & Energy - e&e.


There exist many ways to present economic Indicators named in general as “productivity”, “rate of return”, or any other denominations of an Indicator. The definition of any of those Indicators depends on the way in which it is calculated, on which accounting data are taken into account in the calculation, on the way the several data are corrected for inflation, on the time span considered, etc. For the Brazilian Electric Sector it is very important to establish, in the most precise way, the basic concepts utilized in the calculation of a “productivity Indicator” because of some characteristic factors related to the Brazilian generation system:

- the fact that a large portion of the investments was made in the past (and still will be in the future) in the construction of large hydroelectric power plants, which require huge capital outlays and are cheap to operate;

- the long period in which these large hydroelectric power plants are already in operation, and the long period during which they will still continue to operate;

- the long period of inflationary decontrol through which Brazil passed until 1995, which turns extremely difficult and complex the correction for inflation of the several relevant data;

The economic interests which are involved in the presentation of economic Indicators are very large. It may seem to some that the concepts are very clear and well established, but this is frequently not the case. Although many Indicators can legitimately be called “Rate of Return”, “Productivity”, etc., the way how they are calculated influences decisively the “value” which is finally obtained. Furthermore such “values” most of the time may be completely different one from the other, and not by small amounts.


For the present work it was decided to use the methodology described in the document called “Measuring Productivity – OECD Manual” (Ref. 1). As the subject is not yet a current practice in Brazil, the subject is commented in more depth than would be usual, particularly in Chapter 2 (Basic Theoretical Discussion). The discussions presented in the OECD Manual cover an amplitude which is far beyond the specific cases presented herein, and which are related only to specificity’s the Brazilian Electric Sector as a whole and to some companies which are part of it. The OECD Manual assumes the existence of large statistical series, well defined accounting data, but this is not always the case in practice. In particular for the present analysis, it is necessary that data be available, and defined in the most precise way in monetary values, for the following:

- gross financial output;

- taxes and similar outlays incising directly on the output;

- intermediate input, gross of taxes;

- primary input (capital and labor) gross of direct taxes and similar;

- time series of the relevant investments during the relevant time periods;

- appropriate and coherent deflation factors for all relevant output and input data.

The work was performed in two directions.

In the first direction, historical data since 1970 and until 2007 were evaluated for the Electric Sector as a whole (generation, transmission and distribution), and productivity was calculated in terms of the value-added capital productivity. The data were obtained from the Brazilian Energy Balance (Balanço Energético Nacional – BEN) (Ref. 2). This is a document published every year by the Brazilian Ministry of Mines and Energy, and it documents, in the Brazilian national context, the consumption, commercialization and production of the several energy carriers in Brazil. For the Electric Sector data are presented in this document for power plants such as installed capacity, electricity generation, classification (public service, auto-producers, independent producers), fuel used. The document provides a basis for calculations related to every aspect of electric energy utilization.


The time span of the evaluations performed covers a large period, from relative economic stability in the early 70’s, to economic turmoil in the late 70’s, 80’s and early 90’s, and finally a relatively good stability afterwards. The overall results nevertheless make some sense and allow for some conclusions, if adequate correction factors are used for deflation, which is always a risky business.


The second direction focused the actual evaluation of some selected companies in the energy sector, on basis of their published Annual Reports for the specific recent years of 2008 and 2007. As the companies are all either monopolists (or quasi) it may be argued that the numbers which have been arrived at have little sense in terms of comparisons with companies of the private sector.


For this analysis of specific companies, the Economy & Energy Organization– e&e has developed a software, in EXCEL format, which performs the evaluations on  basis of information gathered from the Annual Reports of the companies (Ref. 2). Data are taken directly from:


- the Assets Statement and its complementary Explanatory Notes;

- the Financial Results Statement and its complementary Explanatory Notes;

- the Value-Added Destination Statement

- information aiming at estimating a distribution of deflated capital immobilization since start of operations of the company.


The last piece of information is difficult to be obtained in the Brazilian conditions, because of the economic turmoil during a large period in the past. Nevertheless, and specifically for the Electric Sector, it is shown that in most cases a distribution based on the electric generation capacity of the companies provides reasonable results.


The OECD Manual stresses very strongly that the presented theory is only valid when the companies operate in a competitive market, trying to maximize their profits but only through produced quantities. That is, the companies operate in a competitive market but are unable to influence prices. This is obviously not the case of most of the companies of the Brazilian Electric Sector integrated into the National Integrated System, which possess only a very small possibility of influencing their profits. In general their prices for selling (and of buying) energy are established through unilateral acts of the Brazilian regulating agency (ANEEL, Agência Nacional de Energia Elétrica). In the definitions of the OECD Manual these are “non market producers”.


Nevertheless, numbers have been arrived at which show a rarely mentioned dimension of the performance of the companies and of the overall sector, and certainly give some useful indications.


However, the largest distortions (and, may we say, manipulation possibilities) arise through the consideration of the appropriate deflation factors which have to be used when establishing the overall Productive Capital of a company or of the overall sector. As already mentioned above, huge distortions occurred in Brazil in this area because of the hyper inflation rates which plagued the country for more than a decade and until 1995.


For Brazil the discussion of capital productivity is very important because, as an emerging country, there exists a traditional lack of capital. Furthermore, in several instances capital has been invested in ways which were not the most productive. Therefore, enlightening these questions will certainly bring arguments for relevant discussions.


In the next pages, before coming to the discussion of actual results, basic theoretical questions will be shown. This is done so only for the purpose of clearly establishing the concepts which were use for the work.

2 – Basic Theoretical Discussion

“Productivity is normally defined as a ratio between a volume measurement of an output factor and a volume measurement of an input factor. Although no disagreement exists about this general definition, an evaluation of the existing literature on productivity and its applications reveals that there does not exist neither one sole objective, nor one sole measurement of productivity. Two of the most intuitive objectives of productivity measurements are the searches for maximal efficiency and for real cost savings.


The search for maximal efficiency is a permanent engineering purpose. Achieving maximum efficiency means that the production process has reached the maximum level of output which is physically possible with the existing technology, and for given fixed level of inputs.


The search for real cost savings is a pragmatic way for describing the essence of productivity measurements. Although it may be possible to isolate different kinds of changes in efficiency, technical changes and economies of scale, in practice this is a difficult endeavor. Productivity is normally measured at the margin, and the margin captures every factor, including changes in the utilization of capacity, learning lessons of past errors of all types. Authors have already emphasized that there exists a host of sources behind growth in productivity and have called it real cost savings. In this sense, productivity measurements in practice may be seen as the search for the identification of real cost savings in the production.” (1)

There exist many different types of productivity measurements. Choosing one particular type depends on the purpose of the measurement and, in many cases, on the availability of data. In general productivity measurements may be classified in:

- single factor productivity, relating one production measurement to only one input factor measurement; or

- multi factor productivity, relating one measurement to several input factors measurements;

Another classification, which is relevant for companies to capture production changes, relates measurements of:

- some measurement of gross production; or

- some measurement of value added.


2.1 – The Productive Capital Stock

“The input factor capital is conceptually measured as a flux of services, normally called capital services. For example, a building used by an industry represents a capital invested which provides services for protection of personnel, storage facilities, etc. One way of computing the value of this building as a provider of services for the production process would be to utilize its rent. In the case of a building this may even be possible because there may exist a market which may turn this possible (at least as an evaluation) but this is not be the case for industrial investments in general. One alternative might to utilize other means to evaluate the value of the capital services provided by an invested good, for instance the return of Government bonuses, or even the rate of return of the company” (1).


However, in the above example, the building will only provide capital services when it is effectively operating. During construction, for instance, it does not provide such services and shall therefore not be considered as part of the capital utilized for the measurements.


“It is a known fact that the quality of the measurements existing for the input factor capital services suffers from an insufficient empirical basis. For instance, there exist few (and old) empirical studies for the determination of useful life of assets, of their age-efficiency and age-price profiles. In general, measurements of capital services for productivity analyses should be established in a consistent way, with balance of assets and consumption of fixed capital.” (1)


It must be kept clearly in mind that only capital which effectively provides capital services shall be considered as part of the capital stock. In the jargon of capital productivity analyses, capital obtained in the way mentioned above is called Productive Capital Stock and designated by K.


In summary, the theoretical discussion seems straight forward: Productive Capital Stock of a company is the summation of those assets which produce capital services for the production process, and the measurement of those capital services is (at least, should be) their market value. In practice these simple assumptions are very difficult to be obtained, and we will shortly comment on them.


“As markets do not normally exist for the large majority of the assets which are used in the production process of an industry, it is necessary to estimate the value of the capital services indirectly. Normally this is done by assuming that the value of the services is proportional to the actual worth of the assets. As assets get older, normally their ability to produce capital services and their residual worth decrease, a phenomenon which is captured by so called efficiency-age and worth-age profiles.” (1)


In practice this fact should be adequately captured by the accounting practice of depreciation. Depreciation means that the accounting value of an asset has decreased over time, normally by fixed amounts (the linear method) and for a prescribed time period. A truck, for instance, may be depreciated in 5 year by a fixed amount of 20% per year and the corresponding value is considered a cost for accounting purposes. However, it is normally far from true that a truck has lost 20% of its ability to carry objects from one place to another, eventually it has not changed at all and therefore its ability to perform capital services remains the same. However, such depreciation methods are commonly used, and they are in the companies’ interest because they decrease income taxes.


Another example is still more evident. Many Brazilian large hydro electric power plants have been operating over several decades, and will continue to do so for another number of decades. The civil structures are depreciated (again with the linear method) over 40 years, and all other assets are depreciated in even much shorter periods. The plants are totally depreciated now and therefore do not contribute to the assets of the company. However they continue to produce energy, provide capital services and, as such, should be part of the Productive Capital Stock.


The above comments illustrate the first of the main distortions which may occur with the analysis as performed for this work. That is, the depreciation methods normally utilized lead to a vastly underestimated Productive Capital Stock for any company. The question is how to correct it adequately?


The specific actions taken in the analysis in order to circumvent the problems for the specific cases will be commented.


For the analysis of specific companies, data were taken from the Assets Statement and its complementary Explanatory Notes. Information aiming at estimating a distribution of deflated capital immobilization since start of operations of the company was gathered from the Annual Reports.


2.2 – The Labor Input Factor


“Labor remains as the most important input factor for most production processes. The question on how this input factor is measured is not trivial. Accounting for “hours worked” provides a sometimes useful statistical Indicator which is used in many industries for comparison purposes (for instance, hours worked per car produced). However such measurements show also limitations, as hours worked by one worker may produce results completely different from hours worked by another one as there may exist large differences in abilities, experience, etc. Nevertheless, labor input measurements based on hours worked are recommended, and their average hourly compensation is their price component.” (1)


“Conceptually labor input should reflect the compensation paid for labor from the point of view of a producer, including all complements to salaries such as (for instance) the producers contribution to social security. However, such an apparently simple concept still raises a lot of questions when effectively implemented. For instance, how to deal with extra-salary parts of compensation such as (for instance) stock options?” (1)


“Expenses for training purposes constitute a form of investment in human capital, as it is a form for achieving future benefits both by the employer as by the employee. However, differently from physical assets, investments in training do not lead to easily identifiable assets. Technical norms recommend that these investments be classified as intermediate inputs.” (1)


“The non-salary portion of labor compensation, particularly social contributions paid by employers, is another element which is difficult to include adequately in measurements of labor compensation. Procedures specify that social contributions of employers be part of employees compensation, including those made directly to pension funds” (1).


In the present work, for analysis of specific companies, the measurement of the labor input factor is taken (as best possible) from the Results Statement of the companies and its complementary Explanatory Notes, and from the Value-Added Destination Statement. The measurement will include all costs directly related to employees’ salaries, including all payments made directly to the Pension Funds. It is sometimes hard to identify correctly the adequate accounts, as the accounts definition is not completely harmonized among the companies.


2.3 – The Intermediate Input Factors


“Measurement of value-added based productivity or gross-output based productivity requires information on prices and quantities of the flow of intermediate inputs bought by a firm, industry or sector. Intermediate inputs are those inputs which are endogenous to the production process, that is those goods and services which are bought and transformed by the production process.” (1)


The measurement of intermediate input should reflect the decision making process of the buyer, as he sees the prices and considers them in his decision making. In summary, measurement shall be gross of all taxes, transportation and other expenses. But it shall be net of any fiscal benefits for the supplier.


2.4 – The Output Factor Production and the Definition of Value ADDED


“Consider a company which acquires primary and intermediate inputs and generates production and income. Gross production means the value of the goods and services which are produced within this unit and become available for outside utilization. This is a gross measurement in the sense that it represents additions to sellable items and to stocks, without considering intermediary inputs. For a company, measurement of gross output factors combined with primary input factors (capital and labor) and intermediate input factors corresponds directly to a specific production model.” (1)


Productivity measurements based on gross output are routinely used for many purposes.


Alternatively, output can be measured as the Value Added of a production process, and the Value Added is calculated considering the company output but only the primary input factors. The concept is very important and is one of the basis for the analyses performed for the present work. The figure below shows graphically the concept, and it is easy to understand.







Direct taxes on invoice

Value Added

Income and related taxes


Primary Inputs

Services provided by Capital (depreciation)



Intermediate inputs









“Productivity measurements based on the Value Added of a production process capture the capacity of a company to contribute for the final income and demand of a economy as a whole. In this sense, Value Added measurements complement measurements based on gross output.” (1)


Depreciation deserves a special comment. Depreciation measures the loss of market value of an asset between two consecutive periods. There have been discussions about whether production should be considered net or gross of depreciation, but today it is accepted that production should be measured gross of depreciation. One of the reasons for considering production as gross of depreciation is the necessity of consistent treatment of capital. If it is on the one hand an input factor (as capital services), on the other hand it should be part of production.


Value added defined in the way described above is called Liquid Value-Added to production and is designated by Y.


2.5 – Correction for Inflation


One important point for the validity of productivity measurements is that correction factor for inflation (the deflation process) should be built independently for input factor and for output factors. The OECD Manual stresses this point strongly, as well as specifically the point that deflation of input factors should really reflect prices at the level of the producers of the relevant goods.


For the present work, the time span of the evaluations performed covers a large period of Brazilian economic history, from relative economic stability in the early 70’s, to economic turmoil in the late 70’s, 80’s and early 90’s, and finally a relatively good stability afterwards. Specifically the deflation of assets during such a large period and under the harsh economic conditions brings obviously many problems.


Take again the example of the Brazilian large hydro electric power plants, which have been operating over several decades and will continue to do so for another number of decades. How to deflate such an asset under the mentioned conditions?


Rules specified by ANEEL state that companies should report historical values after 1995, and an specific deflation rule was applied by ANEEL to correct the assets until 1995. Therefore two questions occur:

- does the deflation rule applied for correction until 1995 really reflect adequately the correction, at the relevant production level, of all assets;

- how to deflate assets during the period from 1996 up to now.


For the work performed for specific companies, these questions are of paramount relevance, because the application of even small different deflation factors will mean indeed very large differences in the final result of a value for the Productive Capital Stock.


The above comments illustrate the second of the main distortions which occur with the analysis as performed for this work. That it, the choice of deflation factors influences very strongly (in any desired direction) the value Productive Capital Stock for any company. How to choose the correct factor?


The specific actions taken in the analysis in order to circumvent the problems for the specific cases will be commented.


2.6 – Valuation


“The concept of valuation is related with the decision of including or excluding taxes, fiscal benefits, costs of transportation, etc. in the prices to be considered for input and output factors. From the perspective of productivity measurements, choosing an specific valuation method should reflect that price which is most relevant for the decision process of the producer, for output as well as for input factors.” (1)


For the present purposes, basic and buyer prices are to be distinguished. Basic prices measure the value which is actually retained by a producer, and therefore exclude taxes and transportation costs to be paid, but includes fiscal benefits to the producer. As the basic price measures the value which is retained by the producer, it is the most relevant for its decisions.


Buyer prices measure the value which is actually the price paid by a buyer to take possession of an specific good or service in an specific point of space and time. Buyer prices are the prices which are relevant for buying decisions, including taxes, transportation costs, margins of commercialization, etc.


It is therefore recommended that basic prices be used for measuring output factors, and buyer prices be used for measuring intermediate input factors.


2.7 – Capital Productivity Based on Value ADDED

“Capital productivity shows how productively capital is used to generate value added. Capital productivity reflects the joint influences of labor, intermediate input factors, technical changes, efficiency changes, economies of scale, utilization of installed capacity, etc. Measurements of capital productivity may be based on concepts of gross production or on value added. In the last case the Indicator is less influenced by any alteration on the relation between intermediary input factors and labor, on the level of vertical integration, or on processes of substitution between intermediate input factor and capital.”(1)

This very important productivity Indicator is defined as follows:



Definition  = 


Quantity measurement of Liquid Value Added to production (Y)

Quantity measurement of Productive Capital Stock (K) 


Capital productivity must be distinguished from capital rates of return, or internal rates of return. Capital productivity is a physical, partial, measurement of total productivity, whereas rates of return measure the global return of the global stock of capital. Capital productivity captures only (but this is a grand and worthwhile objective) how effectively capital is being used by (say) a company in the fulfillment of its statutory objectives, those for which the company exists after all. It does not capture any by-ways which the company may use in order to increase its profits outside its statutory objectives.


Seen in this way, the Indicator capital productivity isolates the effectiveness of these statutory actions from any others, and serves therefore for enlightening their effectiveness.


The advantage of this Indicator is the ease of understanding its meaning. The difficulties, again, are that it does not reflect hosts of factors which are not captures, and that it is frequently confused with global rates of return of the global stock of capital.


The unit of the Capital Productivity Indicator is a quantity “per time”, for instance the usual % per year.


3 – Results for Overall Brazilian Eletric Sector



Capital Productivity = 


Quantity measurement of value added produced (Y)

Quantity measurement of Productive Capital (K)


The measurement unit used is % per year


All comments and definitions and comments shown in the previous chapter are to be considered when evaluating the results presented herein.


3.1 – Definition of the Electric Sector

For reasons of the present work the Electric Sector is defined as a whole, involving all companies which operate is the areas of generation, transmission and distribution of electricity to the final consumer. This ample definition was made in order to make it compatible, in the best way possible, with data existing and related to


- the selling of energy, which are presented in a global way in the National Energy Balance (Balanço Energético Nacional – BEN) as sold to the final consumer and in several consumption categories (Residential, Commercial, Public, Agriculture and Animal, Transportation and Industrial);

- tariffs, which are presented in the BEN as averages for Brazil as seen by the final consumer, but only in two classes (Residential and Industrial);

- investments, which are also presented in a global way in several statistics related to the Electric Sector as a whole (Generation plus Transmission plus Distribution).


The Figure below shows objectively the definition outlined above and which was used for the work performed.



The Electric Sector “closed” in this way incorporates all companies which operate in the areas of generation, transmission and distribution. As external interfaces there exist only:


- selling of energy to the final consumers, both the free and the regulated ones;

- buying of items from third parties of items for the operations for all areas;

- buying of fuel for the thermal power plants.


In Brazil the thermal generation is very small (in general less than 10%), which means that only a small amount of fuel is acquired by the Sector.


The evaluation of the Electric Sector was performed for the period 1970 to 2007, a period for which there exist data which are comprehensive and of reasonable quality related to the consumption of electricity, prices to the final consumer, as well as global investments. During this period Brazil passed through many macro-economic turbulences, so that the data must be treated carefully. For the present case, all monetary data was deflated to the year 2007.


3.2 – Value ADDED


The National Energy Balance contains a compilation of average annual tariffs for electricity supplied to the final consumer since 1973, in Brazilian currency and converted to the mean US$ of the year. All values include direct taxes on the invoices. A deflation of these values (using the GNP deflator) was made to convert these data to R$ (2007).



During the period since the end of the 70’s and the mid 90’s the electricity tariffs were used by Governments to help in the control of inflation. The average tariff was R$ 350.00/MWh, decreased to R$ 200.00/MWh, and has recovered to a reasonable value again lately.


The present Brazilian consumption is about 2.200 kWh/hab/year, still low in comparison with other countries. Growth has been of the order of 5% per year recently. During the 70’s it was over 10% and was even negative during the crisis of 2001.



Costs and expenses of the overall Electric Sector (excluding fuel for thermal plants, labor cost and depreciation) were estimated at R$ 50,00 per sold MWh, based on evaluations performed on the Annual Reports of a number of companies.


Fuel costs for thermal plants vary very much, depending on the type of the plant (coal, gas, fuel oil, nuclear, etc). On the other hand these costs are not very important, because the relative share of thermal generation is very small, always of the order of 10%. It is not worthwhile to enter into great details about the matter, and the average cost for thermal generation was estimated as R$ 40.00 per MWh (thermal) generated.


With these data it is possible to calculate the Value Added of the Electric Sector.




3.3 – Productive Capital Stock


The investments of the Electric Sector were obtained from relevant statistics related to evaluations to the GNP and gross national investment levels. A GNP deflator was used.

For the calculation of the Productive Capital Stock the following assumptions were made:


- linear depreciation in 60 years average, that is 1,67% per year

- re-investments of 0,3% per year of the accumulated investment in each year.


3.4 – Capital Productivity


With these data it is possible to calculate the Capital Productivity of the global Brazilian Electric Sector. Productivity was relatively high in the 70’s (however falling from 10% to 6% per year) because of the high tariff and in spite of the large investments which were performed during the period. In the 80’s productivity decreased to very low levels (about 4% per year) because of the low tariffs and in spite of the reduction in investments. There was a recovery since the mid 90’s, because of the recovery of the tariffs level.



4 – Capital Productivity for some Selected Companies


Some Brazilian companies of the Electric Sector were evaluated in order to establish the Indicator Capital Productivity which was discussed previously. The basis for the evaluations was only and solely the Annual Reports (Ref. 3) issued by the companies dated 31/12/2008. The reports contain several analyses of little interest for the present work (such as Sustainability Analysis, Social Insertion, several Indicators, etc.) but present the information required for the present analysis::

- the Assets Statement and its complementary Explanatory Notes;

- the Financial Results Statement and its complementary Explanatory Notes;

- the Value-Added Destination Statement

- information aiming at estimating a distribution of deflated capital immobilization since start of operations of the company.


The last piece of information is difficult to be obtained in the Brazilian conditions, because of the economic turmoil during a large period in the past. Nevertheless, and specifically for the Electric Sector, it is shown that in most cases a distribution based on the electric generation capacity of the companies provides reasonable results.


These documents are somewhat standardized according to ANEEL regulations (although with a large set of comments and footnotes), and allow a reasonable analysis for the purposes of the present work.


For this analysis of specific companies, the Organization Economia & Energia – e&e has developed a software, in EXCEL format, which performs the evaluations on  basis of information gathered from the Annual Reports of the companies. Data are taken directly from the a above mentioned documents.


4.1 – Productive Capital Stock


The first issue is to establish the Productive Capital Stock of a company based on the above mentioned documents. It is again stressed that the precise concept to be used in productivity analyses is the capital services which a given capital stock will realize as an input factor for a production process. This concept is very important, and will never reflect the value which is stated in the Assets Statement as Total Assets as an accounting concept. It is easy to understand that, from Total Assets, values must be deducted to reflect that portion which is not productive in the definition given above.


In a practical way four (4) issues must be taken into account when establishing the Productive Capital Stock of a company on basis of its Annual Reports  (present and past):


- the specific accounts, which are part of the Assets Statement and which will be part of the Productive Capital Stock;

- the time series of investments, taking into account that one type of asset in reality will consist of several different assets and that heterogeneity’s shall be taken into account;

- the relevant producer level price indices, for deflating the time series of investments;

- the time profiles of productive capacity and price losses of the assets.


4.1.1 – Specific accounts which are part


In the evaluation about the specific accounts (part of the Assets Statement) only those accounts which reflect assets which effectively realize production shall be considered. Production means the stated statutory objective of the company. For instance, for the case of companies of the Electric Sector, accounts reflecting assets still under construction, assets reflecting monetary investments shall not be considered, as they do not realize production because:

- in the first case, the asset is not yet in operation;

- in the second case, although the asset realizes production, this production falls not in the statutory objectives of the company.


4.1.2 – Temporal series of investments and deflation


In order to obtain the time series of the investments for the company it would be necessary to evaluate the same accounts in the Assets Statements of the previous relevant years. The objective is to obtain the series in order to be able to deflate it.


Obtaining time series of price indices at producer level may be very difficult in Brazil when long periods are involved, as is the normal case with companies of the Electric Sector. The period of macroeconomic turmoil, with hyper inflation rates, which occurred for decades until 1995, obviously distorted any statistic for the period.


The Electric Sector is regulated by ANEEL and has some specific rules for accounting. According to one of the reports, “goods belonging to the immobilized assets are evaluated according to the cost incurred at the date of acquisition or formation, and those acquired or formed until December 31, 1995 were monetarily corrected (deflated) until this date”. It is not clear how the deflation was performed until 1995, but it is clear that values of assets acquired or formed after this date reflect historical costs.


In order to get some information about the time series of the investments, one can evaluate some physical factor which is preponderant for the particular company. For many companies, such factor may be the entering into operation date of their large generation plants, and this may reflect in some measure a distribution of the time series of its overall investments.


For the present work it was therefore assumed that:


- the deflation performed until 1995 (inclusive) of the investments reflects adequately the correction of assets prices at producer level;

- for generation companies, the weighed date of their investment in generation capacity reflects adequately the time span to be deflated;

- for non-generation companies a weighed date is estimated.


The fraction of accumulated Immobilization and Depreciation falling before and after 1995 can be easily calculated.


As stated, for deflation the simplifying assumption was made, considering weighed average dates for accumulated Immobilization and Depreciation. This simplifying assumption turns much easier the whole computations, and detailed evaluations for one company have shown that this simplifying assumption provides reasonable results.


For deflation index, IPC-DI was taken. For the period from 1996 to 2008 the average annual deflation index is 0.067% per year.


4.1.3 – Time profiles of productive capacity and price losses


The Electric Sector is regulated by ANEEL and uses very strict rules for depreciation. The linear method is used, and the depreciation rates are prescribed. Some examples are shown:




Depreciation (%/y)

Useful life (y)

One company average













ANEEL prescriptions Reservoirs, dams

Reservatórios, barragens



Hydraulic turbines



Water intake equipment



Concrete structures



General equipment







In evaluating the values presented, it is evident that the useful life periods considered seem way too short. Some large hydro electric power plants are operating for decades and will continue to do so, although being already completely depreciated. Additionally, and still more evidently, the utilization of the linear depreciation method certainly does not reflect the effective loss of the productive efficiency of the related goods.


In short, the depreciation methodology utilized in the Electric Sector vastly underestimates the effective value and the effective services potential of the assets. In conclusion, it is necessary to apply a large correction to the depreciation values informed by the companies in their Results Statement, decreasing them, in order to obtain a more reasonable approximation to the actual Productive Capital Stock of the company. For the present work the depreciation was simply halved in all cases, but without any detailed evaluation.


For the present work accumulated Depreciation was corrected considering:

- the weighed average date of Immobilization;

- an arbitrary correction to the remaining useful life of the Immobilization;

- a depreciation methodology which is not linear, but represented by a polynomial distribution of 6th degree, corresponding to retaining 75% capacity at 80% useful life.

- Ano médio ponderado para todas as Imobilizações;

- Acréscimo, de maneira arbitrária, à vida remanescente das Imobilizações obtida através do cálculo, e de acordo com as características da empresa;

- Parcela da Imobilização ainda a depreciar, com a aplicação do método mais “lento” de depreciação, representado por um polinômio de 6o grau.


4.2 – Value ADDED


Value Added corresponds to the income which is generated by primary input factors (labor and capital). This is a straight forward concept which can be applied directly to the Financial  Results Statement of the companies.


In order to apply the concept in practice, from the stated Gross Operational Income presented by the companies in their Financial Demonstration, there have to be deducted all expenses, except:


- labor,

- depreciation,

- expenses made not in a productive sense


Care has to taken with financial income and expenses. Any of these shall not be considered productive for any of the companies of the Electric Sector.


Arbitrarily, the annual depreciation stated by the companies can be corrected at this point, considering the more reasonable methodology mentioned above, or any other desired correction.


4.3 – Results for Selected Companies



















Assets Statement








Total Historic Values








Total Accumulated Depreciation








Net Total








Corrections to the Assets Statement
















Reevaluation of Depreciation








Assumed remaining useful life(y)
















Corrected Productive Capital Stock
















Results Statement








Gross Operational Income








Deductions to Operational Income








Operational Costs and Expenses








Net Total








Corrections to Results Statement








Correction of Capital Services




not calc




Corrected Value Added
















Directly from Statements








After Statements corrections









In the results shown it is to be noted the large differences in productivity for the companies, what is to be expected, as they operate in diverse environments, have diverse statutory objectives, are privately-owned or government-owned, etc.


It is also to be noted the extremely large corrections to the Productive Capital Stock values taken directly from the Assets Statements, and due to:

- deflation, representing most of the correction

- reevaluation of Depreciation


As already stated previously, such huge corrections, which depend on factors estimated sometimes intuitively, may distort any results which are arrived at. For one of the companies for instance, the following occurs:


- productivity was calculated at 2.81 %/y under the stated assumptions, which may still be optimistic but can be taken as a lower limit;

- productivity will increase to 16.40 %/y by taking the value of Productive Capital Stock directly from the Assets Statement, which is certainly a higher limit.


These limits are too far apart, and obviously such uncertainties lead to the possibility of achieving any desirable result depending on the correction indices to be specifically chosen.


Therefore, the point is made here that it is worthwhile to investigate further such matters.




Referências Bibliográficas


1OECD Manual – Measuring Productivity – Measurement of Aggregate and Industry-Level Productivity Growth, OECD, 2001;


2      Descrição de “software” desenvolvido para o Cálculo da Produtividade do Estoque de Capital Produtivo de Empresas (Description of a software developed for the calculation of the Productivity of the Productive Capital os Comapnies); Organização Economia & Energia – e&e, June, 2010.


3      Balanço Energético Nacional (National Energy Balance) issued in 2008, with data until 2007; Ministry of Mines and Energy (EPE)


4      Annual Reports  dated 31/12/2008 and 31/12/2007 for a number of companies of the Brazilian Electric Sector (all available through Internet)


Graphic Edition/Edição Gráfica:
Editoração Eletrônic

Wednesday, 04 January 2012

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