Enel Americas SA (ENIA) Q3 2021 Earnings Call Transcript

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Enel Americas SA (ENIA)
Q3 2021 Earnings Call
Oct 27, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen and welcome to Enel Americas Third Quarter 2021 Results Conference Call. My name is Jesse, and I will be your operator for today. Please note that all lines will be open in listen-only mode until the question-and-answer session. [Operator Instructions]

During this conference call, we may make statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements could include statements regarding the intent, belief or current expectations of Enel Americas and its management with respect to, among other things, Enel Americas' business plans, Enel Americas' cost reduction plans, trends affecting Enel Americas' financial condition or results of operations, including market trends in the electricity sector in Chile or elsewhere, supervision and regulation of the electricity sector in Chile or elsewhere and the future effect of any changes in the laws and regulations applicable to Enel Americas or affiliates. Such forward-looking statements reflect only our current expectation, are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those anticipated in the forward-looking statements as a result of various factors. These factors include a decline in the equity capital markets of United States or Chile, an increase in the market rates of interest in the United States or elsewhere, adverse decisions by government regulators in Chile or elsewhere, and other factors described in Enel Americas' Annual Report on Form 20-F, including under Risk Factors.

You may access our 20-F on the SEC's website at www.sec.gov. Readers are cautioned not to place undue reliance on those forward-looking statements, which speak only as of their dates. Enel Americas undertakes no obligations to update these forward-looking statements or disclose any development as a result of which these forward-looking statements become inaccurate.

I'll now turn the presentation over to Mr. Rafael de la Haza, Enel America's Head Investor Relations. Sir, you may now proceed.

Rafael de la Haza -- Head of Investor Relations

Thank you, Jesse. Good afternoon, ladies and gentlemen, and welcome to our third quarter 2021 results presentation. I'm Rafael de la Haza, Head of Investor Relations of the company of Enel Americas. And in the coming slides, our CFO, Aurelio Bustilho, will be presenting the main figures of this period.

Let me remind you that this presentation will follow the slides that have been already uploaded into the company's website. Following the presentation, we will have the usual Q&A session. [Operator Instructions]

Now, let me hand over the call to Aurelio, who will start by outlining the main highlights of the period in Slide number 2. Please, Aurelio.

Aurelio Bustilho -- Administration, Finance & Control Manager and Chief Financial Officer

Thank you, Rafael. Good afternoon, everybody. In this third quarter, we have seen an important recovery in terms of demand in all countries compared to last year. We also concluded the installation of 100,000 smart meters in Sao Paulo, which are part of a project that aims to install 300,000 smart meters in Sao Paulo. In terms of tariff adjustments, last week Enel Goias tariff was adjusted in 16.5%. The increase in demand and the consolidation of EGP Americas in CTA are the main reasons that explain the important improvement in our results. EBITDA increased by 47% during the third quarter and net income for the first nine months of the year grew by 28%. Regarding ESG, we were scored CT-3 by Moody's in carbon transition assessment. At the same time, we reached the highest level of compliance in best practice of governance by PwC and Universidad de los Andes. These recognitions reflect the relevance of ESG on our strategy.

Finally, we are glad to announce the start of operations of more than 400 megawatts of new nonconventional renewable energy capacity. After the merger with EGP Americas, we have added 3.6 gigawatts of solar and wind capacity. At the same time, we're continuing working on another 2.7 gigawatts under construction.

Let's move to the following slide to see the evolution of currencies, demand and collection. As shown on the left chart, Brazilian real was the only currency that appreciated against U.S. dollar during this third quarter, while all the currencies suffered depreciations. Regarding electricity distributed, we are glad to see the recovery seen in the last quarter. That recovery has continued during this period. Demand comparing to last year is significantly higher. And even if we look at the pre-pandemic period in 2019, before the COVID, we are in a better position now, recovering the levels pre-pandemic. In terms of collection, we had an important recovery in the region, especially in Peru, which increased 8.3 percentage points compared to last year. In the four countries, we are now around 100% of collection, slightly better than pre-pandemic levels.

On the other hand, regarding bad debts, we can see a deterioration or an increase in the bad debt of 38.5%, reaching US$248 million. This is mainly explained by an increase in Enel Rio and to a lesser extent in Enel Sao Paulo and Enel Goias. We expect for the coming months to reduce this level of net debt -- of bad debt, sorry, improving our operations in the short-term, especially in the distribution that we are showing increase in this figure, in this line.

Now, let's have a look at our investments for the period. During the third quarter of this year, our CapEx increased by 114% compared to the same period of last year, reaching US$815 million. This is mainly explained by the consolidation of EGP Americas, which contributed with a CapEx of $316 million, which represented 39% of total CapEx of the period. Without considering this, CapEx would have increased by 31%, mainly explained by higher investment in distribution business in Brazil. In cumulative terms, our investments increased by 84%, reaching US$1.8 billion. Without the contribution of EGP Americas, CapEx would have increased by 32%. With the incorporation of EGP Americas, we see that Brazil has become the most important country in terms of investments with 65% of the total.

Now, I'll analyze our operation -- operating highlights in the following slides. In generation business, our installed capacity increased by 39% due to the incorporation of EGP Americas, reaching 15.6 gigawatts, from which 68% is renewable. Net production in the third quarter reached 13.8 terawatt hours, an increase of 25% compared to the same period of last year explained by EGP Americas and a higher production in Peru. In cumulative terms, production increased by 21%. Energy sales increased by 56% and 21% during the third quarter and nine months period, reaching 19.4 terawatt hours and 52.7 terawatt hours, respectively, mainly explained by the consolidation of EGP Americas and a demand recovery in the region.

Let's analyze networks business in the next slide. Electricity distributed reached 30.2 terawatt hours in the third quarter and 89.5 terawatt hours in the cumulated nine months period, which represents increases of 4% and 5%, respectively. This is explained by an important recovery in demand in the four countries where we operate. Regarding number of customers, we had an increase of around 450,000 in the last 12 months, suppressing the level of 26 million clients among all distribution companies. In terms of quality indicators, SAIDI and SAIFI improved in the four countries during the period, while energy losses basically remained flat with the exception of Peru, which had an important reduction.

On the following slide, we'll see Enel X and retail businesses. In Enel X business, we had a solid growth in charging stations, photovoltaic panels, public light. Credit card business was basically in line with the -- while the micro insurance decreased by 29% due to restrictions over the pandemic period. Regarding retail business, the number of delivery points increased by 32%, reaching 4,366 in terms of delivery points. And the energy sold amounted to 15.1 terawatt hours in the first nine months of the year, which means a 35% increase for the energy sold in retail business.

Let's now analyze a look -- let's now have a look at our ESG highlights in the next slide. The merger of EGP Americas puts the -- Enel Americas, the company, in an excellent position to lead the energy transition and reduce our exposure to co-generation and our CO2 emissions even more, which is a focus of our strategy. The integration was well perceived by the credit agency, which is reflected in the carbon transition assessment or CTA carried by Moody's for the company. The company obtained a score of 3, being one of the best score, and 10 for this rating. Certainly, the company's strategy is strong regarding the energy transition.

Finally, we are glad to announce that the company obtained the first place in a study made by Pricewaterhouse and Universidad de los Andes that measures the level of compliance regarding best practice in corporate governance in Chile. This reflects our robust corporate governance system and transparency in our reporting system that is aligned with the best practice at the international level.

Now, I will comment about the financial results for the period in the coming slide. EBITDA in the third quarter reached $1,066 million, 47.1% higher than the same period of last year. This is mainly explained by the consolidation of EGP Americas and the demand recovery in distribution business. If we exclude the impact of EGP Americas and the negative impact of $39 million coming from currency devaluation, we get to an EBITDA of $961 million, which is 32.6% higher than last year. In cumulative terms, EBITDA increased by 25.6% in nominal terms and 19.4% excluding EGP Americas and the negative impacts of $126 million from FX. Despite the inflation increase that we have seen during this period, we have been able to control the increase of OpEx, which increased 13.6% during the quarter and 5.3% on a cumulative basis.

Group net income in the third quarter increased by 39.2%, while on a cumulative basis it increased by 27.8%. In both cases, there is a -- explained by the contribution of EGP Americas' better result in EBITDA level and better net financial result. Funds from operation in the period reached $683 million, a decrease of [Technical Issues] last year, while net debt increased by EUR31.8% [Phonetic] reaching $5.8 billion. We will analyze it in detail in terms of cash flow and net debt in the presentation.

On the coming slide, let's take a look in the EBITDA evolution and its breakdown. Starting from $725 million of EBITDA of third quarter of 2020, we see that all businesses had positive results, except for Enel X, when you see thermal generation improved by $41 million, while renewable increased by $203 million, from which $134 million are coming from EGP Americas. Network distribution grew by $117 million and retail increased by $27 million. Currency devaluation had a negative impact of $29 million. Considering this plus other impacts, we get to a final EBITDA of $1,066 million, 47% higher than the same period of 2020. On a country basis, we see that the main contributor for the consolidation EBITDA was Brazil with 42%, while Colombia represented 36%; Peru, 14%; Central America, 5%; and Argentina 4%.

Let's have a focus on generation and networks business in the coming slide. EBITDA in generation business increased by 68%, mainly explained by the contribution of EGP Americas. Without this effect, EBITDA would have increased by 28%, and this is mainly explained by better results in Brazil and Colombia, mainly explained by higher sales price and higher energy sale in case of the thermal plant of Fortaleza. Currency devaluation had a negative impact of $20 million. On a cumulative basis, EBITDA for the first nine months of the year reached $1,412 million, being Colombia and Brazil the main contributors. This represents an increase of 42% compared to the same period of renewable business from EGP Americas in the coming slide. Installed capacity in operation during this period reached 4.4 gigawatts, from which 2 gigawatts are wind, 1.6 gigawatts hydro [Phonetic]. This capacity includes a 0.4 gigawatts of new capacity added during the third quarter of this year, coming from six new projects in Brazil and Panama. We currently have 2.7 gigawatts of capacity under construction, from which 1.8 gigawatts are wind projects and 0.9 gigawatts are solar, most of them coming from Brazil and Colombia. From this 2.7 gigawatts, 0.3 gigawatts will begin operations next year -- or this year, until the end of this year; 0.6 gigawatts next year and 1.7 gigawatts in 2022.

EBITDA during the third quarter was $134 million and -- from which 54% came from Brazil, 40% from Central America, 6% from Peru. In cumulative terms, EBITDA reached $261 million since the 1st of April when we started to consolidate EGP Americas. Regarding CapEx, we totalized $316 million in this quarter, mainly due to projects in Brazil and Colombia. CapEx for the first nine months reached $509 million.

Now, let's see networks business in the next slide. EBITDA in networks business increased by 29% compared to the third quarter of 2020. We had better results in all countries, but the main growth comes from the better result in Brazil. In Brazil, EBITDA improved by 39% mainly due to an increase in 2.3% in energy demand along with the higher tariffs due to the tariff adjustments in Rio and in Ceara and in Sao Paulo. Important to highlight that the energy demand increased in four countries reflecting a solid recovery after the difficult times we faced last year due to the pandemic. On cumulative terms, EBITDA in distribution business reached $1,423 million during these nine months of the year, being Brazil and Colombia the main contributors; this represents an increase of 12% compared to the same period of last year.

Let's analyze our cash flow in the coming slide. Funds from operations amounted to $1,172 million on the period. Starting from an EBITDA of $2,759 million, these results includes a negative networking capital in the period for an amount of $840 million mainly due to higher CVAs in Brazil that should be recovered. Tax paid during this period amounted to $600 million, while net financial expenses or payments -- financial payments amounted to 100 -- to less $147 million, 15% lower than last year. After investments of $1.8 billion, including $316 million coming from EGP Americas, we get to a free cash flow of minus $636 million.

Let me now analyze the debt of our company in the coming slide. Gross debt amounted to almost $7.3 billion, an increase of 23% compared to December 2020. And this amount includes $1.1 billion coming from EGP Americas, which is offset with the cash injection made by Enel SpA before the merger and that is currently in Enel Americas holding level. The increase in the gross debt is explained by increase in our distribution subsidiaries in Brazil and in Colombia, partially offset by a reduction in Enel Americas holding.

Looking at our net debt, starting from -- starting with the $4.4 billion of last year, we had minus $633 million of free cash flow that we've seen in the previous slide. Net dividends paid amounted to $767 million and financial receivables minus $14 million. EGP Americas contributed with $688 million coming from the equity injection before mentioned. Again, the cash for this project is at Enel Americas' level. With this plus the effects or less the effects of $49 million, the total net debt reached US$5.8 billion. In terms of currency and country, we see that Brazil remains the largest contributor, while the debt at holding level, at Enel Americas' level, represents only 10% of the total.

Finally, regarding the cost of debt, we can see an increase for this period going from 4.9% to 5.6% [Phonetic] in the indexes associated with variable rates of debt in Brazil. This is partially offset by better rate conditions in refinancing debt in Colombia and Peru and liability management at Enel Americas' level.

Let me conclude this presentation with some closing remarks. During the quarter, we saw a solid operational recovery across the region. This is -- this situation allowed us to have an important improvement in EBITDA level, boosted by the consolidation of renewable assets. We continue with our ESG focus and we are positioning our company as one of the best ESG players in Latin America.

Finally, we are strongly delivering and executing the new capacity coming from non-conventional renewable sources, in line with our strategy. Rafa?

Rafael de la Haza -- Head of Investor Relations

Well, thank you, Aurelio. Thank you for your [Technical Issues]. Well, thank you. I now pass the call to the operator for the Q&A session. Operator, please.

Questions and Answers:

Operator

[Operator Instructions] Speakers, our first question is from the line of Enrico Bartoli of Stifel. Your line is now open.

Enrico Bartoli -- Stifel -- Analyst

Hi, good afternoon. And thanks for taking my question. I have three. The first one is on Brazil. You show this very strong increase in EBITDA from the distribution business. If you can provide us some details in addition to the comments you already made on the drivers and particularly on recovery of electricity demand, from which sector you are seeing that, and the tariff adjustments that you received in the period? And if you can also give us an outlook for the fourth quarter and the next quarters both in terms of additional recovery possibly of demand and if you expect any more tariff adjustments in your companies over the next quarter? Second question is related to the renewable business. You show this 2.7 gigawatts of capacity in execution. If you can give us some hint on the pipeline that you have on top of this and the level of visibility and in which country you expect most of the development in renewable capacity over the next years? And the last one, if you can remind us your guidance for EBITDA for the full year? I think it's around $4 billion. But if you can confirm that or elaborate on this?

Aurelio Bustilho -- Administration, Finance & Control Manager and Chief Financial Officer

Well, the increase in distribution is mainly explained by two factors, right? First one, the tariff readjustments for the period, right? We had tariff readjustments in all distribution businesses in Brazil. Well, Goias, it has been in -- it is already done. It is in October. It's not in these results. But we had for the first nine months in Rio, in Ceara and in Sao Paulo. All of them -- well, Rio and Ceara around 6% and in Sao Paulo 9.5%. So this is one of the reasons they are the secondly, profit demand [Phonetic]. We are 5% better than last year during the period. I mean, not only in Brazil, but in all regions. And better -- and 2% of 2019 in the same period. So this shows a recovery in this line. If you ask me if this will maintain for the fourth quarter, I think the only thing -- there are two things that will balance this situation. First of all, the recovery in the countries is more -- the countries are more, let's say, recovering the economy from one side, but there is also temperature issues that can affect and we cannot estimate how will be the temperature. But I mean, it's sustainable this recovery, not -- it will not jump. But we are not seeing a reduction of the demand level in terms -- for the last quarter.

And one important thing is that we got the tariff adjustment in Goias of -- recognizing the 16% of tariff adjustment. That is not in the first months. That will support to -- let's say, to maintain this recovery in terms of results. In terms of capacity for the distribution business and -- sorry, for the renewable business, we are constantly improving the pipeline of this business because it is key to deploy renewables and take advantage to improve the energy transition during this period. So we are constantly improving. We are now 55.6% of pipeline, of which 36 -- sorry, 55.6 gigawatts, of which 36.7 is in Brazil and of which -- I mean, 15 gigawatts are in mature stage -- I mean, 55 gigawatts of pipeline, 23 mature stage. Of this 23, 15 gigawatts are in Brazil. And of course, the difference in early stage. This is important; I mean, when you see these figures -- of course, it doesn't mean that in the following day we will enter with 15 gigawatts. But to really deploy projects, we need to this development of -- constant development and constantly improving the pipeline and improving the best practice to develop this pipeline in order to have better projects.

Let me tell you that one demonstration of this is at -- exactly yesterday, we were awarded with an auction in Colombia with 100 gigawatts -- sorry, 100 megawatts of the action promoted by the Colombian government, and it will start in operation in 2023. I mean, this is the evolution and the way we do this in a very proactive and industrial way to produce better projects and to install the -- and to take advantage of momentum and pricing in order to have an integrated portfolio to serve our clients with the best solution that we can. And the last but not least, we are seeing due to the -- especially due to the FX effects that we are seeing right now, our estimation is $3.9 billion for the EBITDA for this year. Yes, it depends on the performance. I mean, regarding the operational issue, we are very well positioned. But the main issue here is related to FX. Let's see how it moves forward to confirm this number. But it's more to US$3.9 billion for the year.

Enrico Bartoli -- Stifel -- Analyst

Thank you very much. Very clear.

Aurelio Bustilho -- Administration, Finance & Control Manager and Chief Financial Officer

You're welcome.

Operator

Next question is from the line of Henrique Peretti of JPMorgan. Your line is now open.

Henrique Peretti -- JPMorgan -- Analyst

Thank you. Good morning, Aurelio. I have two questions. The first one is about the hydroelectric prices. We are having better rainfall in October. So the question is, do you think this is a good signal for November, December, the next months? And if the risk of operation is declining starting 2022 or if it's too early to tell? And the second question would be, we were reading in the local press about this new sector loan for distribution companies that could range between BRL10 billion and BRL15 billion. So the question would be how much would Enel withdraw from this fund and when we should have it done?

Aurelio Bustilho -- Administration, Finance & Control Manager and Chief Financial Officer

Very good points, very good questions. I mean, yes, we have seen improvement as well, the volume in Brazil are improving, but to require some attentions. I mean, even with the flags and so on that it's maintained -- the distribution companies, they have been affected by this working capital issue because, as you know, part of this higher cost generation is paid by distribution and with -- the flags is paid by the demand. But again, we are still having this effect more related not economically, but financially in the distribution business, right. So in terms of, let's say, financial, we are -- that's why we are discussing with the regulation -- not only Enel, but other distribution companies, the regulator -- not only Enel, but distribution companies in order to rebalance this situation in terms of financing, right. We expect -- well, the amount, if you see, is pretty much similar. It is a coincidence. But it's similar to Conta COVID [Phonetic], if you see the amount that we had last year, right? But of course, the dynamics are completely different, because it's more a -- the previous one depends on the over contracting or -- not over -- yes, over contracted. And now, right now, it's more related to a more distribution of this amount over the -- let's say, the dispatch in the quarters from distribution companies.

We are estimating something around US$400 million or, let's say, 400 -- it's more or less BRL3 billion or BRL2.8 billion for our distribution companies. But I mean, it's a rough estimation because, as you know, the difference from the other calculation here is to divide the quarters from -- the quarters, quotes -- the parts of the generation, the big hydro generation, distributed to all distribution companies and this amount for each company. But this is more or less the amount that we expect. And if you see the funds for operation, this is very close to what -- we have a negative impact during this period because you see a very good, let's say, economic situation, but a not so good financial situation. That's why we are discussing with the regulator in Brazil. And it's moving, in my opinion, in a good pace in order to have this process concluded until the end of this year but we are confident that we are reaching a very good position.

I don't know if I answered all the questions, but if not, please, Henrique, remind me.

Henrique Peretti -- JPMorgan -- Analyst

Yes. Just one follow-up regarding the hydro scarcity tariff flags. So Aneel said it would remain in place until April. If we have a better rainy season, do you think the government could go back to red level 1 or red level two before April to kind of relieve the final consumers? Or the expectation is no matter what happens with hydrology this tariff flag is going to remain in place until April to have to recover the reservoirs and also the cash of the distribution companies, and then after April then the system is going to be more normalized, hopefully, and then we can go back to the lighter flags?

Aurelio Bustilho -- Administration, Finance & Control Manager and Chief Financial Officer

A very good question. It depends on the -- especially on the -- of the situation in the -- during the summer. As you know, especially in the -- it will start raining -- we expect it by the month of November and December. But this is, of course, a perception. In our opinion, the government will be very, let's say, conservative at that sense. And we'll -- my first impression is that they will maintain unless they see a very good improvement in terms of hydrology. Well, we see also that the population, the consumers, they are reacting positively with this demand, let's say, demand response compensation, which means this combination of a good hydrologic and a good demand response behavior, I mean, from the consumption, maybe they could reduce the level of tariffs. But I don't know exactly what the government -- of course, what the government will do. But I mean, the approach that I see is that they will be -- the government will be very conservative on this situation and improvements in these both factors. But probably mainly the hydraulic situation, they can alleviate a little bit the flag, the issue; let's see.

Henrique Peretti -- JPMorgan -- Analyst

Thank you, Aurelio.

Aurelio Bustilho -- Administration, Finance & Control Manager and Chief Financial Officer

You're welcome, Henrique.

Operator

Next question is from the line of Flavia Sounis of Goldman Sachs. Your line is now open.

Flavia Sounis -- Goldman Sachs -- Analyst

Thank you. Good morning. Hi, Aurelio, thank you for the call. My question is regarding the development of the renewable capacity and the pipeline. We have seen several headlines regarding supply chain concerns, increasing CapEx costs. I would say, specifically in Brazil, we have been hearing a lot about it. I wanted to hear a little bit from you if you're seeing something along those lines as well? If you could give us some hint of -- around what you're seeing in terms of costs of development here? And also, if you could give us some detail or some information regarding the negotiation of contracts for this capacity, if you're seeing a good movement, a lot of interest from the market companies in the free market? Or what are you thinking in terms of contracts for this pipeline, not only in Brazil, but in the whole region?

Aurelio Bustilho -- Administration, Finance & Control Manager and Chief Financial Officer

It's an important question because it's exactly the big -- let's say, the big transformation in our region is this movement from regulated to free market, right? You know that not only the market is asking for this, for more cheaper, more reliable, more green energy, but also the regulation is moving to this new -- let's say, new scenario of liberalization. This is in Brazil and this is also in Colombia, because Colombia is deploying the smart meters -- is incentivizing the smart meters. And with this, embedded with these smart meters deployment, the possibility for the clients to choose their own supply in terms of energy. So the difference is that Colombia we have already a new cap system or model in terms of remuneration. And Brazil, as you know, is working more on reducing the limits for the clients to be free. There's an escalation of these limits. And the way they are doing is slightly different. But this movement, I think, it's a challenging, but it's a big opportunity. So from our perspective, to face and to meet this business in a sustainable way is key to have, let's say, the upstream, the green upstream of energy and to be in all the value chain position. So, that's why we are positioning in renewables in this chain but most important to be with the customer; this is very obvious also what I'm saying. But to have the connection and to have a very solid and very proactive sales force and integrated sales force to this customer base, this is key. Note that we have 26 million clients in the region and the main distribution companies in -- and the main quantity of clients in Brazil. So we are very well positioned to this.

And what is key here is to be with the customer, selling the platform -- sorry, the portfolio of energy, mixing wind, solar and hydro and complementing with the thermal plants, the gas thermal plants in order to provide what the customer -- what this customer that wants to be free, that wants more cheaper energy, more flexibility, more green energy, more reliable energy, provide what they want and for the use that they want. And embedded with this, all the services related to the users of the energy, like -- and then with this enter the light mobility, enter the smart lighting, enter the demand response, enter the distributed energy. So, I mean, for us, the key here -- what you asked is key, because to take advantage -- for us, it's more an opportunity. Note that this free market is very -- it's not consolidated. A lot of commercialization if you see Brazil, if you see even in the other countries like Colombia, but more in Brazil. But this big movement of chunk of energy that's moving from regulated to free market. Of course, the margins will reduce in terms of commodities, but it increases a lot the value that will add to the clients and we can charge them for this. Related to -- it's an important issue that you mentioned also the cost of development. Of course, we are also seeing that the increase in terms of -- especially due to the increase in the production in China, this -- all these effects in terms of -- that we are seeing in the cost -- in the inflation and cost of materials and so on will increase the cost for everybody, right?

But I mean, there are some studies, for example, from -- that I can tell you that's saying that the cost would increase 20% in general, right, for wind 20 in terms of wind projects. In solar, another 10 to 15. But again, this is for everybody. And we are very well positioned in terms of procurement and in terms of development of this project, because you take advantage of the capacity, the procurement capacity of Enel, which is our controller shareholders. And for us, with this, we can minimize, let's say, the impact using this procurement capacity to not impact -- full impacted by the deployment, which -- I mean, it will be more expensive for us. We expect less from -- comparing to other competitors. In terms of pricing, it's public the information. But yesterday, in Colombia -- a good demonstration of this in Colombia was -- Colombia promoted an auction of renewable energy yesterday. It was auctioned at 800 megawatts, solar and wind. We were awarded with 100 megawatts. The average price of this auction was COP155 per megawatt hour, which is a -- in our opinion is a very good price.

And our projects, of course, it's not public, but we got a better price than this one, which means that more and more you should be -- you should have agility to capture price and -- the better price in the best situation. And that's why we -- probably the price that we got yesterday was higher or the highest price that we got even in Colombia for the previous year, which means that we captured the opportunity. So not only sell energy, but also purchase energy, because sometimes the energy in some situations -- you see, for example, the same Colombia with -- it won't go -- expectations. Sometimes the short-term, you see some -- the price go down, go up. But I mean, this thing influences a lot. So you need to take -- to capture these opportunities. And if not only sell, but also purchase when you see cheaper energy, like we did in Brazil in the pandemic period. We purchased some energy to protect the company in the short-term. So that's why we are long in the short-term in Brazil. I mean, a very proactive way in terms of pricing and capturing the best opportunities.

And last but not least, also this hydrology situation. For example, the prices in Brazil, we see prices in the same level of these Colombian prices, right, and especially in the free market. Showing that the best -- our best remedy that we are producing and pushing for the region is to deploy green and renewable energy and to push the cheapest and the cleaner energy and, of course, taking advantage to providing the better and the fastest energy to the clients. Please note, that these auctions that we had yesterday in Colombia, the CLD is -- we need to enter in operation in January of 2023. I mean, it's very fast if you compare to develop another project in -- for example, with scare of the hydro and so on. So that's our -- I mean, our contribution in terms of environment, but also in terms of profitability and sustainability and economic situation to the clients and to the system.

Flavia Sounis -- Goldman Sachs -- Analyst

That's great. Thank you.

Aurelio Bustilho -- Administration, Finance & Control Manager and Chief Financial Officer

You're welcome, Flavia.

Operator

Next question is from the line of Javier Suarez of Mediobanca. Your line is now open.

Javier Suarez Hernandez -- Mediobanca -- Analyst

Hi, many things for the presentation. Good morning, Aurelio and Rafael. Three questions. And excuse me, if I'm repeating some of the questions because my -- I got cut during the conference, during the Q&A and maybe I have missed some of the questions from my colleagues and I'm repeating someone. So apologies in advance. So, the first one is on the working capital. Looking at my notes, I think that during the previous quarterly call it was mentioned that the negative networking capital impact should normalize next year. Is it still that the expectation of the company? Or have you seen a worsening on the working capital of the company during the third quarter of the year? So a clarity on that, where you are expecting -- when you are expecting that normalization happening and if there is some change versus the guidance that it was given during the second quarter call? That is the first question.

The second question is on the energy losses of the company that remains high and particularly in Brazil. So I was wondering what managerial actions the company can take to reduce these energy losses that still -- that remains stable. And despite the increase in CapEx guidance, there -- managerial options to reduce energy losses would be helpful as well. And the third one is on the growth that you are pursuing and following. I have seen that the projects in executions are focusing in Brazil and Colombia. So would you consider a fair statement to say that Enel Americas when it comes to developing renewal synergy, it's likely to have a highly concentrated strategy -- geographically concentrated strategy that focuses first on Brazil and then Colombia and all the rest is likely to negligible?

Aurelio Bustilho -- Administration, Finance & Control Manager and Chief Financial Officer

Thank you. Thank you so much, Javier. No problem. Look, for the working capital, yes, we said in the second quarter that we expect that this balancing would be over the time with the recovery, with demand and so on. But the hydrological situation deteriorates. That's the negative impact. But on the other hand, we are moving in a very good and positive way with this rebalancing from the regulator for the financial situation. I mean, if you see, we are deteriorated in terms of working capital, right? But the regulator -- we expect that the regulator will compensate these effects we expect until the end of this year, right? This is a new information -- I mean, two new information: the hydrology deteriorated; and second, the regulator is coordinating with all distribution companies, the rebalance of financial position.

And our rough estimation, I was answering to Henrique before, is around US$500 million for this period. Well, the total amount for the Brazilian distribution companies is expected to total BRL15 billion. I mean, this number moved from BRL10 billion to BRL15 billion. It's around this. So this is the new issue. In terms of losses, yes, you are right. We are still high, especially in Argentina and Brazil, right? In Brazil, the main offender is Rio, right? Our focus in losses -- of course, this depends a lot in terms of discipline of market. So since we recovered the capacity to operate and to maintain the discipline of market we will recover this losses level. But in Rio, it is still high. We are talking about 21% of losses in Rio, which is -- for regulator -- the regulator level is 15%. So I mean, this is a very important issue. Of course, we balance this with the cash flow, investing and capture, what we lose in margin we invest. But anyway, there is a -- since we are recovering the capacity to operate, we are confident that we'll recover the losses.

And again, improving the digitalization and especially to remote operate the delinquency in terms of -- not only in terms of loss, but also in terms of collection. And we'll recover. But -- we'll recover -- or we are focused to recover. But I mean, there is a regulation discussion here, regulatory discussion on the other hand that we are also addressing. But this is an issue more related to Rio. And Buenos in Argentina and Edesur also -- Argentina is more related to the pandemic restriction to maintain the discipline. In Argentina, it's 18% the losses. So we expect that since we recovered the capacity to operate and maintain the discipline, we'll recover these levels. And the -- I forgot the last -- or I think I forgot one point that you mentioned, Javier.

Javier Suarez Hernandez -- Mediobanca -- Analyst

Yes. I was mentioning on the -- I was asking on the growth strategy of the company. I have seen that most of the capacity in execution, in -- is concentrated in Brazil and Colombia and -- yes. And is it a fair statement to say that Brazil is going to be a first priority, then Colombia, and all the rest is going to be more residual?

Aurelio Bustilho -- Administration, Finance & Control Manager and Chief Financial Officer

It's a very good point. Yes, it's a very good point. You see that our capacity strategy, Javier, answer to the demand request, right? As we are seeing demand requests -- I mean, there are more possibilities and there are more, let's say, mature situations in Brazil than in Colombia, right? And these pipelines, they are answering to this. But what you mentioned, this is something that we are analyzing it, we are analyzing also. Because if you see our -- it's a very good point because these climate issues, especially hydrology and so on, it's more frequently, you see more frequent. And one interesting thing is that what happens in terms of hydrology in Peru and Colombia is exactly the opposite. In the great part of the time, we are seeing that they are different from Brazil, and also Chile, if you want, right? So Peru and Colombia complementary with Brazil, right, in our perimeter. So, we are very -- this is a very good point to balance the situation in terms of generation and especially in the hydrology, because we are very well balanced. So it means that your question is: "Why are you investing more, more? Are you analyzing this situation?" Yes, we are analyzing and we are also seeing the -- that's why we increased our -- Brazil is still high because the demand in Brazil requires more capacity, right? But we are analyzing also the possibility, of course, to work as a portfolio, but to work in a possibility to compensate this -- and to balance this exposure, if I may say.

And again, we are in very good, well position in terms because we are -- we have complementary hydrology systems, if I may say, in terms of El Nino and La Nina in Brazil and -- compared to Colombia and Peru. So we are analyzing the -- that's why we are increasing and taking advantage of this more, let's say, improving conditions in terms of regulation, in terms of demand, in terms of push of the Colombian government to increase in Colombia. But it's still -- it is more in Brazil because Brazil is more mature in these technologies. Please note that the metrics of -- the generation metrics in Brazil in renewable energy, solar and wind, are higher -- much higher than Peru and Colombia. We're talking about 13% of both energies; so that's why. But your question is a very good point. We are analyzing also. Of course, we're analyzing. We see the push of the demand, but we also see the risk analysis in order to be positioned in a balanced way in terms of hydrology. I repeat. And you all know it's more frequent this kind of climate situation. What happened in the past seems that will not happen in the same way in the future. So more and more of this issue is very, very, very important.

Javier Suarez Hernandez -- Mediobanca -- Analyst

Very helpful. Thanks.

Aurelio Bustilho -- Administration, Finance & Control Manager and Chief Financial Officer

You're welcome, Javier. Thank you.

Operator

[Operator Instructions] Next question is from the line of Nicolas Langlois of Cuprum. Your line is now open.

Nicolas Langlois -- Cuprum -- Analyst

Hey, Aurelio. Many thanks for the conference call. I'd like to ask you some questions if you can help me. The first one, I would like to understand in more detail the increase in the average cost of debt of 68 basis points year-to-date that has increased. How much is explained maybe from variable rate debt or debt renunciations you may have done? And the incorporation of the EGPA debt, the $1 billion that you incorporated that is debt with your holding company. And to understand the financial cost of this last one. I couldn't see in the third quarter earnings report the financial costs of this debt, but in the second quarter one, I saw that it was $29 million for a $1 billion debt. So just to understand how are the coupons or the interest payments of this debt to understand the annual rate in that sense. And if you are thinking about any liability management to take advantage of the low rates we have seen in discrete rating spectrum?

My second question is, maybe I would like to come back a bit on the working capital investment of $480 million year-to-date. That is a very important amount, 30% of the EBITA generation in the period. I would like to understand how do you think the government could compensate the company, because the -- an important portion of this investment is because the company can't increase final customer's tariff as much as it deserves, right, in terms of the smaller companies. So how do you see the mechanism to be recovered this working capital? And how do you see the chance of continuing increasing tariffs in Brazilian real double-digits for the next couple of years? And my third question is, how possible that the distribution of the Eletropaulo operation for liabilities management? And what is the current imbalance on a balance sheet basis?

Aurelio Bustilho -- Administration, Finance & Control Manager and Chief Financial Officer

Yes. Nicola, thank you for your question. Well, financial situation, right? Well, the interest rates are increasing, especially in Brazil, right? So it moved from 4 point -- I mean, the average cost in 2020 it moved from 4.9% to 5.6%, right? So -- but if you see the cash flow of the company, we paid less financial costs, right? From one hand, the increase of interest rates, of course, we pay more especially in Brazil. We pay less cost, right? If you see in the cash flow, we paid less US$22 million, right, compared to the previous period. But this is -- if you consider, there is an increase in the financial cost of US$60 million, right? But we can -- but maximizing the cost -- remember that we increased the pay-in to Enel Americas and maintained the pay-out for Enel America. So we balance or reduce the exchange effect variation in Enel Americas and reduced the financial costs in Enel Americas. So this -- with this, we reduced $9 million right?

So keeping this calculation, $60 million in Brazil worse. Then we improve Enel Americas with $9 million. Then we improved the liability management, especially in Colombia, with $8 million, capturing opportunities of -- in the right moment, reducing the cost. And also intergroup. So I mean, $80 million for in Peru. And then we have $60 million positive effect of mark-to-market, especially taking advantage of two things. First of all, the situation of -- of course, we have -- that's why we maintain our debt more connected with the revenues. So with the devaluation, we got an improvement in this way. And also taking advantage of liability management, refinancing the -- our debt, our expensive debt, especially by the end of last year, and when you see opportunities to reduce the spread.

What's happening right now is different from last year, Nicolas, is that the spread that we are seeing is reducing. So the key here is to refinance and get a lower spread compared to last year. So I mean, despite the increase of the interest rates -- of course, we were impacted because we are exposed to CDI, for example, not Selic, but CDI is very much close in Brazil. And -- but we take advantage of reducing the U.S. dollar exposure and refinancing, reducing the spread. And if you've seen in the nine months in the cash flow, the company paid less financial costs, financial services, right -- interest costs, sorry, better speaking, better saying. In terms of working capital, the -- it's important, Nicolas, to consider two things. In July last year, remember that we received in Brazil the Conta COVID, US$500 million, right? So when you see the comparison of networking capital, we see a negative impact, because last year injected -- the Conta COVID injected $500 million in the company.

Second effect, this year, we deteriorated the situation. Remember that I explained the situation of, let's say, hydrology and especially in Brazil, right, because distribution in Brazil is different from Colombia, which recognizes the negative effect two months after. In Brazil, you need to expect -- to wait 1 year to recover the bad hydrology, let's say, or the thermal dispatch imports from Argentina and so on, you need to expect for the next year. So we had a huge impact by this effect in terms of hydrology, which we expected around $400 million that we are discussing with the regulator to be compensated we expect by the end of this year, right? So with this -- the main reason for the deterioration of our debts is two factors.

First, because we count with an extraordinary cash, let's say, for last year for the Conta COVID, which is a situation related to the reduction of demand. And this year, we didn't have -- we have a worse situation in terms of FFO, of networking capital, purchased energy, anticipating cash to this energy, which will be recovered in the next period. But the regulator will compensate it before -- by the end of this year. Or we expect it -- we are discussing with them and move in a very good way to be compensated by this effect, a similar effect that we have in the Conta COVID, but with other, let's say, reason or origin, OK.

Regarding Enel Green Power -- regarding the $1 billion cash that came from Enel Green Power, this cash is at Enel Americas' level, right? There is still missing projects by the end of this year, but mainly in the next year that we -- of course, as we agreed and as we discussed in the previous quarter. The cash is at Enel Americas' level to also support the reduction of Enel Americas' costs, right? So with this, we are not using credit lines. We can reduce our credit line costs and inject money with capital increase and use this as long as the project requires. We expect by the end of this year and the next year, if everything comes well, we expect so with the development of the projects in Colombia and in Brazil to inject this money. There is still US$600 million today to be injected in the project for this $1 billion that you said pretty much well that came with the merger to inject in the countries.

One important thing is that we protect this cash in U.S. dollars. I mean, it is protected in order not to devaluate -- to suffer impacts of effects of devaluation, which means it's a very good strategy also to better manage the financial costs, consolidated costs. And this is helping us also with this reduction, of course. I mean, not only liability managed, but also reducing the exposure to U.S. dollars. And I mean, linking the debt with the currency in other countries. I don't remember the last question -- pension fund. I don't know if it's the last, but --

Nicolas Langlois -- Cuprum -- Analyst

[Indecipherable].

Aurelio Bustilho -- Administration, Finance & Control Manager and Chief Financial Officer

Yes. Sorry, sorry, go ahead, Nicolas.

Nicolas Langlois -- Cuprum -- Analyst

And regarding the EGPA, the recent Enel SpA, can you please talk about what do you plan to do with it and what's the financing cost?

Aurelio Bustilho -- Administration, Finance & Control Manager and Chief Financial Officer

Well, the financing cost with Enel SpA. What do you mean? No --

Nicolas Langlois -- Cuprum -- Analyst

Because of that then --

Aurelio Bustilho -- Administration, Finance & Control Manager and Chief Financial Officer

Okay. Of course, we -- there is a clear situation of arm's length here, right? We are looking for better conditions in terms of finance, in terms of our financing. If we have a better condition for the financial arm of Enel SpA, why not? Okay. But it should be competitive as we always do and very transparent to our financial issues and arm's length, total arm's length. There's no -- absolutely no way to be out of market any cost of this. We are pursuing reduction of cost, of financial costs constantly, constantly, OK? And, in a very --

Nicolas Langlois -- Cuprum -- Analyst

So what's the rate -- general rate?

Aurelio Bustilho -- Administration, Finance & Control Manager and Chief Financial Officer

This is indexed, Nicolas, will be also in local currency, right, always in local currency or in the same currency of the revenues, right? If it will be in real -- of course, we are looking for financial instruments in IPCA, which is the -- IPCA, which is the local inflation, or in CDI, OK? And the spread of these costs -- we are able, Nicolas, with our financial strength to work with spreads with 100 to 150 basis points over this -- especially over the CDI, right?

Nicolas Langlois -- Cuprum -- Analyst

But I mean, the current that -- what's the current rate? And it is in just dollar, right?

Aurelio Bustilho -- Administration, Finance & Control Manager and Chief Financial Officer

Yes -- no, it's not U.S. dollars. In Brazil, for example, we have financing with the FP for distribution companies, right? If you see the --

Nicolas Langlois -- Cuprum -- Analyst

No, no, in the EGPA -- I mean, in EGPA that -- with Enel SpA.

Aurelio Bustilho -- Administration, Finance & Control Manager and Chief Financial Officer

Yes. But it's pretty much the same, yes. I mean, the financing is not long-term financing with Enel SpA. We are constantly working on reduction of this -- of the spreads of this -- I mean, this debt, right? So I can tell you that it is clearly -- I don't know if you have here the -- no, it's not -- but I can tell you right now, this is -- Nicolas, this is the cost of debt of -- can you open the financial -- just one second here because it's important to show these costs right now. Just one second. Look, for the FP financing, we are talking about 1.3% total cost, OK, 1.3% total cost. I mean, this is the total debt that we have with FC, 1.3%, especially with what we consolidated at Enel Americas' level, which comes with EGP level. If you see isolated EGP level for the projects that we have nowadays, we are talking about 3.9% -- 3.9%, right, total, total cost, I mean, spread plus the interest cost, right? We are projecting that cost -- yes. We are projecting that -- again, Nicolas, there's no mystery here. We are always looking better alternatives in order to reduce these costs. If you see, for example -- of course, the longer the project, the debt, the higher will be the cost. But again, it doesn't matter if you do this with the FP or with infrastructure bonds or debentures in Brazil, we will look for the better -- or subsidized financing with -- for example, with Banco do Nordeste in Brazil or other -- or BNDES, we'll look for the better situation. And there's no difference here. Pension fund; now this pension fund is US$1.3 billion or -- well, depending on the U.S. dollars. But U.S. dollars that we have today, it's 1 billion -- because it's in reals, denominated in reals, right? BRL1 billion -- BRL1.1 billion.

What we did -- remember that we promoted the migration from a defined contribution -- sorry, defined benefit to the final contribution. We got a migration for 21%. So in terms of money, of amount of money, we announced that we'll, let's say, remove the sponsorship for this plan, giving a period, of course, to the managers of the fund to -- let's say, to prepare the -- let's say, the pension fund and all the pension system in order to -- in more 1 year or until the end of '22, starting from '23 to remove this sponsorship, which means that by the beginning of '23, we expect it to transform this because it is a liability, right? Nowadays it is a pension liability and we'll transform this into a financial debt, I mean, with more profitability in terms of cost, in terms of -- I mean, mortality table, in terms of discount rate. So it's more profitability. It's important because it's not our business. So by the beginning of 2023, we expect this BRL1 billion or, let's say, the amount that will be will transform into the fixed debt. And with this, we have a lower risk with the risk with this situation.

Nicolas Langlois -- Cuprum -- Analyst

Thank you very much. That's pretty clear.

Aurelio Bustilho -- Administration, Finance & Control Manager and Chief Financial Officer

Thank you, Nicolas.

Operator

[Operator Instructions] No further questions at this time, speakers.

Rafael de la Haza -- Head of Investor Relations

Well, there are no more questions. I conclude the results conference call. And let me remind you as usual that the Investor Relation team is available for any doubt that you may have on these results. Thank you very much and have a nice evening.

Operator

[Operator Closing Remarks]

Duration: 80 minutes

Call participants:

Rafael de la Haza -- Head of Investor Relations

Aurelio Bustilho -- Administration, Finance & Control Manager and Chief Financial Officer

Enrico Bartoli -- Stifel -- Analyst

Henrique Peretti -- JPMorgan -- Analyst

Flavia Sounis -- Goldman Sachs -- Analyst

Javier Suarez Hernandez -- Mediobanca -- Analyst

Nicolas Langlois -- Cuprum -- Analyst

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