Operating Costs and Expenses

(GRI EC1)

Consolidated operating costs(*) and expenses fell by 9.7% to R$ 722.8 million, vs. the R$ 800.4 million in 2012.

This year-over-year drop mainly resulted from: (i) 28.3% lower expenses on materials mainly due to the conclusion of the Parent Company's reinforcement and improvement works; (ii) the 8.1% fall in third-party services, reflecting the advanced stage of the Company's main construction works; (iii) the 4.5% increase in personnel costs due to severance pay, in connection with downsizing in January 2013, as well as the collective bargaining agreement, which stipulated a 6.5% increase in wages and salaries in July 2013 and; (iv) an increase in the provision for contingencies, mainly due to the revision during the year of lawsuit losses.

The Parent Company's construction costs amounted to R$ 198.8 million in 2013, vs. R$ 135.5 million no 2012. Consolidated construction costs amounted to R$ 243.8 million in 2013, vs. R$ 182.8 million no 2012. The respective construction revenue is calculated by adding the PIS and COFINS rates to the invested amount. In the case of subsidiaries in the pre-operational stage, general administrative expenses and financial expenses are added to the invested amount. The projects have high enough margins to cover construction costs plus certain expenses for the construction period.

(*) Construction costs vary with construction revenues, whose share in total costs increased because, with the recognition of construction revenues for Improvements, the share of Improvement expenses started being recorded as construction costs and no longer as operating and maintenance costs. This change led to an increase in construction costs and a decrease in operating and maintenance costs.