SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20–F

COMPANHIA ENERGÉTICA DE MINAS GERAIS—CEMIG

(Exact Name of Registrant as Specified in Its Charter)

Avenida Barbacena, 1200
30190-131 Belo Horizonte, Minas Gerais, Brazil

(Address of Principal Executive Offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

*                                         Not for trading purposes, but only in connection with the registration of American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act:  None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:  None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

70,874,167,923 Common Shares

91,210,522,699 Preferred Shares

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý No o

Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17  o Item 18 ý

Table of Contents

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PRESENTATION OF FINANCIAL INFORMATION

Companhia Energética de Minas Gerais–CEMIG is a sociedade de economia mista (a state-controlled mixed capital company) organized and existing with limited liability under the laws of the Federative Republic of Brazil, or Brazil.  References in this annual report to “CEMIG,” “we” or the “Company” are to Companhia Energética de Minas Gerais–CEMIG and its consolidated subsidiaries, except when the reference is specifically to Companhia Energética de Minas Gerais–CEMIG (parent company only) or the context otherwise requires.  References to the “real,” “reais” or “R$” are to Brazilian reais (plural) and the Brazilian real (singular), the official currency of Brazil, and references to “U.S. dollars,” “dollars” or “US$” are to United States dollars.

We maintain our books and records in reais.  We prepare our financial statements in accordance with accounting practices adopted in Brazil, including the principles that are established primarily through Law No. 6,404 of December 15, 1976, Law No. 9,457 of May 5, 1997 and Law No. 10,303 of October 31, 2001, which we refer to collectively as the Brazilian Corporate Law.  For purposes of this annual report, we have presented, and in future reports to be filed with the United States Securities and Exchange Commission, or the Commission, we intend to present, our consolidated financial statements and other financial information in reais in accordance with accounting principles generally accepted in the United States, or U.S. GAAP.  For purposes of this annual report we prepared balance sheets as of December 31, 2004 and 2003 and the related statements of operations and comprehensive income, cash flows and changes in shareholders’ equity for the years ended December 31, 2004, 2003 and 2002, in reais all in accordance with U.S. GAAP.  Deloitte Touche Tohmatsu Auditores Independentes has audited our consolidated financial statements at December 31, 2004 and 2003 and for each of the three years ended December 31, 2004, 2003 and 2002.

From and after January 1, 1998, Brazil ceased to be considered a highly inflationary economy under U.S. GAAP and we have not restated financial information to reflect the effects of inflation as from that date.  Therefore, for subsequent periods and dates, our financial statements and other financial data are presented in nominal reais and do not reflect effects of inflation.  See Note 2(b) to our consolidated financial statements.

This annual report contains translations of certain real amounts into U.S. dollars at specified rates solely for the convenience of the reader.  Unless otherwise indicated, such U.S. dollar amounts have been translated from reais at an exchange rate of R$2.6550 to US$1.00, the noon buying rate in New York City for cable transfers in reais as certified for customs purposes by the Federal Reserve Bank of New York, or the noon buying rate, as of December 31, 2004.  The real has recently experienced high volatility.  See “Item 3.  Key Information—Exchange Rates” for additional information regarding exchange rates.  We cannot guarantee that U.S. dollars can be converted into reais, or that reais can be converted into U.S. dollars, at the above rate or at any other rate.

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MARKET POSITION AND OTHER INFORMATION

The information contained in this annual report regarding our market position is, unless otherwise indicated, presented for the twelve-month period ended December 31, 2004 and is based on, or derived from, reports issued by the Agência Nacional de Energia Elétrica (The Brazilian National Electric Energy Agency), or ANEEL.

Certain terms are defined the first time they are used in this annual report.  The “Index of Defined Terms” included in this annual report lists those terms and where they are defined.  As used herein, all references to “GW” and “GWh” are to gigawatts and gigawatt hours, respectively, references to “MW” and “MWh” are to megawatts and megawatt-hours, respectively, and references to “kW” and “kWh” are to kilowatts and kilowatt-hours, respectively.

References in this annual report to the “common shares” and “preferred shares” are to our common shares and preferred shares, respectively.  References to “American Depositary Shares” or “ADSs” are to American Depositary Shares, each representing 1,000 preferred shares.  The ADSs are evidenced by American Depositary Receipts, or ADRs, issued pursuant to a Second Amended and Restated Deposit Agreement, dated as of August 10, 2001, by and among us, Citibank, N.A., as depositary, and the holders and beneficial owners of ADSs evidenced by ADRs issued thereunder.

FORWARD-LOOKING INFORMATION

This annual report includes forward-looking statements, principally in “Item 3.  Key Information” and “Item 11.  Quantitative and Qualitative Disclosures about Market Risk.”  We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting our business.  These forward-looking statements are subject to risks, uncertainties and assumptions relating to, among other things:

•                                          general economic, political and business conditions, principally in Latin America, Brazil and the State of Minas Gerais, Brazil, or Minas Gerais;

•                                          inflation and changes in currency exchange rates;

•                                          enforcement of legal regulation in Brazil’s electricity sector;

•                                          changes in volumes and patterns of customer electricity usage;

•                                          competitive conditions in Brazil’s electricity generation, transmission and distribution markets;

•                                          our expectations and estimates concerning future financial performance, financing plans and the effects of competition;

•                                          our level of debt;

•                                          the likelihood that we will receive payment in connection with accounts receivable;

•                                          trends in the electricity generation, transmission and distribution industry in Brazil and Minas Gerais;

•                                          changes in rainfall and the water levels in the reservoirs used to run our hydroelectric power generation facilities;

•                                          our capital expenditure plans;

•                                          our ability to serve our customers on a satisfactory basis;

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•                                          existing and future governmental regulation as to electricity rates, electricity usage, competition in our concession area and other matters;

•                                          existing and future policies of the Federal Government of Brazil, which we refer to as the Federal Government;

•                                          existing and future policies of the government of Minas Gerais, which we refer to as the State Government, including policies affecting its investment in us and the plans of the State Government for future expansion of electricity generation, transmission and distribution in Minas Gerais; and

•                                          other risk factors as set forth under “Item 3.  Key Information—Risk Factors.”

The forward-looking statements referred to above also include information with respect to our capacity expansion projects that are under way and those that we are currently evaluating.  In addition to the above risks and uncertainties, our potential expansion projects involve engineering, construction, regulatory and other significant risks, which may:

•                                          delay or prevent successful completion of one or more projects;

•                                          increase the costs of projects; and

•                                          result in the failure of facilities to operate or generate income in accordance with our expectations.

The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar words are intended to identify forward-looking statements.  We undertake no obligation to update publicly or revise any forward-looking statements because of new information, future events or otherwise.  In light of these risks and uncertainties, the forward-looking information, events and circumstances discussed in this annual report might not occur.  Our actual results and performance could differ substantially from those anticipated in our forward-looking statements.

Neither our independent auditors, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the forward-looking financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and they assume no responsibility for, and disclaim any association with, such forward-looking financial information.

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PART I

Item 1.           Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2.           Offer Statistics and Expected Timetable

Not applicable.

Item 3.           Key Information

Selected Consolidated Financial Data

The following tables present our selected consolidated financial and operating information in U.S. GAAP as of the dates and for each of the periods indicated.  You should read the following information together with our consolidated financial statements, including the notes thereto, included in this annual report and the information set forth in “Item 5.  Operating and Financial Review and Prospects.”

The selected consolidated financial data as of December 31, 2004 and 2003 and for each of the three years ended December 31, 2004, 2003 and 2002 have been derived from our audited consolidated financial statements and the notes thereto included elsewhere in this annual report.  The selected consolidated data as of December 31, 2002, 2001 and 2000 and for the each of the two years ended December 31, 2001 and 2000 has been derived from our audited consolidated financial statements and notes thereto, which are not included in this annual report.

U.S. dollar amounts in the table below are presented for your convenience.  Unless otherwise indicated, these U.S. dollar amounts have been translated from reais at R$2.6550 per US$1.00, the noon buying rate as of December 31, 2004.  The real has recently experienced high volatility.  We cannot guarantee that U.S. dollars can be converted into reais, or that reais can be converted into U.S. dollars, at the above rate or at any other rate.  On May 18, 2005, the noon buying rate for reais was R$2.4625 per US$1.00.  See “— Exchange Rates.”

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Selected Consolidated Financial Data

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(1)                                   Converted at the exchange rate of US$1.00 to R$2.6550, the noon buying rate as of December 31, 2004.  See “— Exchange Rates.”

(2)                                   In millions, except per share/ADS data.

(3)                                   See Note 4 to our consolidated financial statements.

(4)                                   This information is presented in U.S. dollars at the noon buying rate in effect as of the end of each year.

Exchange Rates

Prior to March 14, 2005 there were two principal foreign exchange markets in Brazil - the commercial rate exchange market and the floating rate exchange market.  Most trade and financial foreign-exchange transactions were carried out on the commercial rate exchange market.  The floating market rate generally applied to transactions to which the commercial market rate did not apply.  Prior to February 1999, the exchange rate in each market was established independently, resulting in different rates during some periods.  As of February 1, 1999, the Central Bank of Brazil (Banco Central do Brazil), or the Central Bank, placed the commercial rate exchange market and the floating rate exchange market under identical operational limits, which led to a convergence in the pricing and liquidity of both markets.

On March 6, 2005, the National Monetary Council (Conselho Monétario Nacional) enacted Resolution No. 3,265 that, effective March 14, 2005, consolidated the two foreign exchange markets into one foreign exchange market for the general purpose of making foreign exchange transactions simpler and more efficient.  All foreign exchange transactions are now carried out in this single foreign exchange market through financial institutions authorized to operate in the market.  Additional regulations governing the new foreign exchange market are pending approval and enactment by the Brazilian government.  We cannot predict the actual impact of the enactment of such new regulations on the new foreign exchange market.

Foreign exchange rates continue to be freely negotiated, but may be influenced by Central Bank intervention.  From March 1995 through January 1999, the Central Bank allowed the gradual devaluation of the real against the U.S. dollar. In January 1999, the Central Bank allowed the real/U.S. dollar exchange rate to float freely. Since then, the real/U.S. dollar exchange rate has been established mainly by the Brazilian interbank market and has fluctuated considerably.

During 2000, 2001 and 2002 the real declined against the U.S. dollar.  Nevertheless, in 2003, the real appreciated significantly against the U.S. dollar due to the adoption of new monetary and fiscal policies by the new Federal Government.  In 2004 and the first four months of 2005, the real continued to appreciate against the U.S. dollar, mostly due to the worldwide U.S. dollar depreciation and the tightening of the domestic monetary policy. In the past, the Central Bank has intervened occasionally to control unstable movements in foreign exchange rates. We cannot predict whether the Central Bank or the Brazilian government will continue to let the real float freely or will intervene in the exchange rate market through a currency band system or otherwise, or that the exchange market will not be volatile as a result of political instability or other factors. The real may depreciate or appreciate against the

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U.S. dollar and other currencies substantially in the future. Any exchange rate fluctuations may also affect our financial condition.

The table below sets forth, for the periods indicated, the low, high, average and period-end noon buying rates for reais, expressed in reais per US$1.00.

Source: Federal Reserve Bank of New York

Exchange rate fluctuations may affect the U.S. dollar amounts received by the holders of ADSs.  We will make any distributions with respect to our preferred shares in reais and the depositary will convert these distributions into U.S. dollars for payment to the holders of ADSs.  Exchange rate fluctuations may also affect the U.S. dollar equivalent of the real price of the preferred shares on the Brazilian stock exchange where they are traded.  Exchange rate fluctuations may also affect our results of operations.  See “—Risk Factors—Risks Relating to Brazil—Exchange rate instability may adversely affect our results of operations and financial condition.”

Risk Factors

You should consider the following risks as well as the other information in this annual report in evaluating an investment in our company.

Risks Relating to CEMIG

We are controlled by the State Government which may have interests that are different from yours.

As our controlling shareholder, the government of the State of Minas Gerais exercises substantial influence on the management and orientation of the business of CEMIG.  Further, the present Governor of the State of Minas Gerais is a member of a party which is in opposition to the present Federal Government.  It is not possible to analyze the impact and effects this may have on us or our results of operations.

The government of the State of Minas Gerais currently holds 51% of our common shares and, consequently, has the right to the majority of votes in decisions of the General Meetings of our Shareholders, and can (i) elect the majority of the members of the Board of Directors of CEMIG, and (ii) decide matters requiring approval by a specific majority of our shareholders, including transactions with related parties, shareholding reorganizations and the date and payment of any dividends.

The operations of CEMIG have had and will continue to have an important impact on the commercial and industrial development of the State of Minas Gerais, and on its social conditions.  In the past, the State Government

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has used, and may use in the future, its status as our controlling shareholder to decide that we should engage in certain activities and make certain investments aimed, principally, to promote its political, economic or social objectives and not necessarily to meet the objective of improving our business and/or operational results.

We may not be able to collect a significant receivable from the State Government.

We have a significant receivable from the State Government under the CRC Account Agreement, which totaled R$1,097 million as of December 31, 2004.  Historically we have been facing difficulties in collecting such receivable.  We are currently offsetting amounts that are due from the State under the CRC Account Agreement against payments of dividends and interest on capital that we are required to pay to the State Government as our shareholder, as allowed under the third amendment to the CRC Account Agreement.  On November 19, 2004, our Board of Directors unanimously approved the main terms of a fourth amendment to the CRC Account Agreement, which includes an increase from 25% to 50% to the amount of dividends and interest on capital due to the State that we are entitled to offset against amounts due under the CRC Account Agreement.  This amendment is still subject to approval by the State Government, and execution of such amendment depends on the approval of ANEEL, our shareholders and the state congress of the State of Minas Gerais. No assurance can be given that all such approvals will be obtained or, if obtained, that any of the installment payments under this amendment will be paid when due or at all.  Furthermore, no assurance can be given that additional loss provisions with respect to receivable will not be recorded in future periods.  See “Item 10.  Additional Information—Material Contracts—CRC Account Agreement”.

We are subject to extensive governmental legislation and regulation.

The Brazilian Federal Government has been implementing policies that have a far-reaching impact on the Brazilian power industry, in particular, the electricity industry.  As part of the restructuring of the industry, Federal Law No. 10,848 of March 15, 2004, (“Law No. 10,848/04” or the “New Industry Model Law”) introduced a new regulatory framework for the Brazilian electricity industry.

Law No. 10,848/04 remains subject to the implementation of resolutions by ANEEL.  Moreover, the constitutionality of Law No. 10,848/04 is currently being challenged before the Brazilian Supreme Court.  The Brazilian Supreme Court has not yet reached a final decision and, therefore, Law No. 10,848/04 is currently in force.  If all or a portion of Law No. 10,848/04 is considered to be unconstitutional by the Brazilian Supreme Court, all or a portion of the regulatory scheme introduced by Law No. 10,848/04 may not come into effect, generating uncertainty as to how and when the Federal Government will be able to introduce changes to the electricity industry.  Accordingly, we cannot now evaluate the impact of the new regulation to be issued by ANEEL or the adverse impact of a decision on the constitutionality of Law No. 10,848/04 would have on our future activities, results of operations and financial condition.

Companies holding concessions for distribution of electricity are required to purchase all of their electricity demand by means of public auctions.  We may not be able to pass on through our distribution rates a portion of the costs of our electricity purchases.

Under the New Industry Model Law, an electricity distributor must contract in advance, through public auctions conducted by the Electric Energy Trading Chamber (CCEE – Câmara de Comercialização de Energia Elétrica), in accordance with laws determined by the Ministry of Mines and Energy, or MME, at least 100% of its forecasted electricity needs for the following five years.  The New Industry Model Law establishes the conditions for passing through energy purchase volumes and prices.  If the energy we purchase in the public auctions is less than 100% of our total captive consumption (which excludes Free Consumers, as defined in this annual report), we may be subject to fines which have not yet been determined by ANEEL and we may not be able to pass on the full costs of our additional energy purchases, which may be at higher prices, to our customers.  If the energy we purchase in the public auction is more than 103% of our total captive consumption, we have to assume the price risk of buying in the public auctions and selling in the spot market.

The New Industry Model Law limits our ability to pass through the cost of electricity purchases to our customers if our costs exceed the Annual Reference Value (Valor Anual de Referência) established by ANEEL,

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which is based on the weighted average price paid by all distribution companies in the public auctions for electricity from new generation undertakings to be delivered three and five years from the date of any such auction.

Considering the numerous factors that affect our electricity demand forecasts, including economic and population growth, and our required purchase of energy from Itaipu in an amount determined by the Federal Government, we cannot assure you that our forecasted electricity demand will be accurate and this may have an adverse effect on our business, results of operations and financial condition.

New rules for the sale of electric energy and market conditions may affect our generation sale prices.

The contracts by which we had initially contracted all of our generation capacity with regulated prices (the “Initial Contracts”) began to phase out at the end of 2002 at the rate of 25% each year and we expect they will be completely phased out in 2005.  Even if we are able to contract all generation capacity liberated from such contracts, we are not able to predict the price at which we will be able to contract such energy.

Additionally, we still have capacity from undertakings yet to be operational that we are planning to sell under the auctions for new undertakings to be held under the Regulated Contracting Environment (as defined in this annual report).  Legislation allows distributors that contract with our generation company under the Regulated Contracting Environment to reduce the quantity contracted under these contracts until a certain limit, exposing the generation company to the risk of failing to contract this reduced energy with adequate prices.

Contracts with consumers allowed to purchase energy directly from generating companies or energy traders (generally consumers with demand equal to or greater than 3 MW, and referred to as “Free Consumers”) will also give such consumers the flexibility to purchase less energy from us than was originally contracted for by such consumers, which may adversely impact our business, results of operations and financial condition.

If we are unable to contract our remaining capacity of energy liberated from existing contracts and energy from new undertakings at adequate prices, our revenues and our results of operations may be adversely affected.

ANEEL has substantial discretion to establish the rates we charge.  Such rates are determined pursuant to concession contracts entered with ANEEL and in accordance with ANEEL’s regulatory decision-making authority.

Concession agreements and Brazilian law establish a price cap mechanism that permits three types of rate adjustments:  (1) the annual adjustment; (2) the periodic revision; and (3) the extraordinary revision.  We are entitled to apply each year for the annual adjustment, which is designed to offset some of the effects of inflation on rates and pass through to customers certain changes in our cost structure that are beyond our control, such as the cost of electricity we purchase from certain sources and certain other regulatory charges, including charges for the use of transmission and distribution facilities.  In addition, ANEEL carries out a periodic revision every five years that is aimed at identifying variations in our costs as well as setting a factor based on our operational efficiency that will be applied against the index of our ongoing annual rate adjustments, the intended effect of which is to reward the good management of our costs while sharing any related gains with customers.  We are also entitled to request an extraordinary revision of our rates if unpredictable events significantly alter our cost structure.  The periodic revision and extraordinary revision are subject to a certain degree of ANEEL’s discretion.

We cannot assure you that ANEEL will establish rates that will adequately compensate us and that our revenues and results of operations will not be adversely affected.  In addition, to the extent any of these adjustments are not granted by ANEEL in a timely manner, our business, results of operations and financial condition may be adversely affected.

We are strictly liable for any damages resulting from inadequate rendering of electricity services, and our contracted insurance policies may not fully cover such damages.

Under Brazilian law, we are strictly liable for direct and indirect damages resulting from the inadequate rendering of electricity services.  In addition, the damages caused to end consumers as a result of interruptions or

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disturbances arising from the generation, transmission or distribution systems, whenever these interruptions or disturbances are not attributed to an identifiable member of the Operador Nacional do Sistema (National System Operator, or “ONS”) or the ONS itself, shall be shared among generation, distribution and transmission companies.  Until a final criteria is defined, the liability for such damages shall be shared in the proportion of 60% to distribution agents, 20% to transmission agents and 20% to generation agents.

We are subject to rules and limits applied to levels of public sector borrowing and to restrictions on the use of certain funds we raise, which could prevent us from obtaining financing.

As a state controlled company, we are subject to rules and limits on the level of credit applicable to the public sector issued by the National Monetary Council and by the Brazilian Central Bank.  These rules set certain parameters and conditions for financial institutions to be able to offer credit to public sector entities.  Thus, if we do not meet these conditions, we may have difficulty in obtaining financing from Brazilian financial institutions, which could create difficulties in the implementation of our investment plan or in refinancing our financial obligations.  Brazilian legislation also establishes that a state-controlled company, in general, may only use proceeds of external or local transactions (debt, including bonds) to refinance financial obligations for which there is no other source of repayment.  As a result of these regulations, our capacity to incur debt is again limited, and this could negatively affect the implementation of our investment plan or the refinancing of our obligations.

There are contractual restrictions on our capacity to incur debt.

We are subject to certain restrictions on our ability to incur debt due to covenants set forth in our loan agreements.  In the event of our non-compliance with any such covenants in our loan agreements, the total principal, future interest and any penalties due under these agreements may become immediately due and payable.  Early maturity of our obligations could adversely affect our financial condition especially in light of cross default provisions in several of our loan and financing contracts.  The existence of limitations on our indebtedness could prevent us from borrowing to finance our operations or to refinance our existing obligations which could adversely affect on business, results of operations and financial condition.

We could be penalized by ANEEL for failing to comply with the terms of our concession agreements, which could result in fines, other penalties and, depending on the severity of non-compliance, expropriation of the concession agreements.

We conduct our generation, transmission and distribution activities pursuant to concession agreements entered into with the Brazilian government through ANEEL.  ANEEL may impose penalties on us if we fail to comply with any provision of the concession agreements, including compliance with the established quality standards.  Depending on the severity of the non-compliance, these penalties could include:

•                                          fines per breach of up to 2.0% of the concessionaire’s revenues in the year ended immediately prior to the date of the relevant breach;

•                                          injunctions related to the construction of new facilities and equipment;

•                                          restrictions on the operation of existing facilities and equipment;

•                                          temporary suspension from participating in bidding processes for new concessions;

•                                          intervention by ANEEL in the management of the concessionaire in breach; and

•                                          termination of the concession.

In addition, the Brazilian government has the power to terminate any of our concessions prior to the end of the concession term in the case of bankruptcy or dissolution, or by means of expropriation for reasons related to the public interest.

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We cannot assure you that ANEEL will not impose penalties or terminate our concessions in the event of a breach.  Any compensation we may receive upon the termination of the concession contract may not be sufficient to compensate us for the full value of certain investments.  If any of our concession agreements are terminated and we are at fault, the effective amount of compensation could be reduced through fines or other penalties.  Termination or imposition of penalties could adversely affect our business, results of operations and financial condition.

We are uncertain as to the renewal of our concessions.

We carry out our generation, transmission and distribution activities pursuant to concession agreements entered into with the Federal Government.  The Brazilian Constitution requires that all concessions relating to public services be awarded through a bidding process.  In 1995, in an effort to implement these constitutional provisions, the Federal Government adopted certain laws and regulations, known collectively as the Concessions Law, governing bidding procedures in the electricity industry.  In accordance with the Concessions Law, as modified by the New Industry Model Law, upon application by the concessionaire, existing concessions may be renewed by the Federal Government for additional periods of up to 20 years without being subject to the bidding process, provided that the concessionaire has met minimum performance standards and that the proposal is otherwise acceptable to the Federal Government.

In light of the degree of discretion granted to the Federal Government by the Concessions Law and the concession contracts with respect to renewal of existing concessions, and given the lack of long-standing precedents with respect to the Federal Government’s exercise of such discretion and interpretation and application of the Concessions Law, we cannot assure you that new concessions will be obtained or that concessions will be renewed on terms as favorable as those currently in effect.  See “Item 4.  Information on the Company—Competition—Concessions” and “The Brazilian Power Industry—Concessions” in Annex A.  In addition, it is possible that our large industrial clients could be authorized by ANEEL to generate electric energy for self consumption or sale to third parties, in which case they may obtain an authorization or concession for the generation of electric power in a given area, which could adversely affect our results of operations.

Non-renewal of our concessions could adversely affect our business, results operations and financial condition.

The present structure of the Brazilian electricity sector is highly concentrated in hydroelectric generation, which makes it subject to certain risks.

The Brazilian electricity industry, highly concentrated in hydroelectric generation, faces a natural limitation to its generation capacity.  Hydroelectric power plants cannot generate more electricity than is made possible by the country’s water resources.  Natural factors could affect our generating capacity, by increasing or reducing the level of reservoirs.  Control of the level of reservoirs by the ONS seeks to optimize the level of water available for hydroelectric generation in each of the power plants associated with the respective reservoirs.  In this context, the ONS could, for example, prevent a generating plant located at the beginning of a river from increasing its throughput of water, if this were to negatively affect the other plants further down the same river.  In the same way, the ONS may decide to increase thermal generation and reduce hydro generation in order to conserve water in the reservoirs.

Periods of drought could lead to a reduction of the hydro generating capacity, thus obliging us to buy energy in the wholesale market to meet the selling contracts we have made.  Shortages and/or rationing due to bad hydrological conditions could result in a reduction of revenue and reduced cash flow.  Any limitation on our electricity generation capacity could adversely affect our business, results of operations and financial condition.

Delays in the expansion of our facilities may significantly increase our costs.

We are currently engaged in the construction of additional hydroelectric plants and the evaluation of other potential expansion projects.  Our ability to complete an expansion project on time, within a determined budget and without adverse economic effects, is subject to a number of risks.  For instance:

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•                                          we may experience problems in the construction phase of an expansion project;

•                                          we may face regulatory or legal challenges that delay the initial operation date of an expansion project;

•                                          our new or modified facilities may not operate at designated capacity or may cost more to operate than we expect;

•                                          we may not be able to obtain adequate working capital to finance our expansion projects; and

•                                          we may encounter environmental issues and claims by the local population during power plant construction.

If we experience these or other problems relating to the expansion of our electricity generation, transmission or distribution capacity, our ability to sell electric energy in amounts in line with our projections may be harmed and we may be exposed to increased costs.  Consequently, we may fail to produce the revenues we anticipate in connection with such expansion projects.

Impositions and restrictions by the environmental agencies could cause additional costs for us.

Our operations related to the generation, transmission and distribution of electricity as well as to the distribution of natural gas, are subject to various federal, state and municipal laws and regulations, and also to numerous requirements relating to the protection of health and the environment.

Non-compliance with environmental laws and regulations could, independently of the obligation to redress any damages that may be caused, result in criminal and administrative sanctions being applied.  Based on Brazilian legislation, criminal penalties such as restricting rights, and even imprisonment, may be applied to individuals (including managers of legal entities), and penalties such as fines, restriction of rights or community service may be applied to legal entities.  With respect to administrative sanctions, depending on the circumstances, the environmental authorities may impose warnings and fines, require partial or total suspension of activities; suspend or restrict tax benefits or cancel or suspend financing lines from governmental lending establishments as well as prohibit the entity from contracting with governmental agencies, companies and authorities.  Any of these events could adversely affect our business, results of operations or financial condition.

Our level of consumer default could adversely affect our business, results of operations and financial condition.

As of December 31, 2004, our total past due receivables from final consumers were approximately R$596 million, corresponding to 7.7% of our net revenue for 2004.  Approximately 13.4% of the past due receivables were owed by entities in the public sector.  We may be unable to recover debts from several municipalities and other defaulting clients which are being renegotiated.  If these debts are not totally or partially recovered, we will experience an adverse impact on our business, results of operations and financial condition.

We may not be able to complete our proposed capital expenditure program.

We plan to spend approximately R$6.4 billion during the period from 2005 through 2009 on the construction of new power installations and the refurbishment and maintenance of existing power plants and transmission and distribution systems.  Our ability to carry out this capital expenditure program is dependent upon a number of factors, including our ability to charge adequate rates for our services, our access to domestic and international capital markets and a variety of operating and other factors.  In addition, our plans to expand our generation and transmission capacity are subject to the competitive bidding process governed by the Concessions Law.  We cannot give you any assurance that we will have the financial resources to complete this program.

Our ability to distribute dividends is subject to limitations.

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Whether or not you receive a dividend depends on the amount of the mandatory distribution required under our bylaws, whether our financial condition permits us to distribute dividends under Brazilian law, and whether our shareholders, on the recommendation of our Board of Directors acting in its discretion, determine that our financial condition warrants a suspension of the distribution of dividends.

Because we are a holding company with no revenue-producing operations other than those of our subsidiaries, we will be able to distribute dividends to shareholders only if we receive dividends or other cash distributions from our subsidiaries.

Our investment in the telecommunications sector may not have the return we expect.

Empresa de Infovias S.A., our telecommunications subsidiary, began operations in January 2001 and its subsidiary, WAY TV Belo Horizonte S.A., or WAY TV, began operations in 2002.  We consider these businesses to be a strategic use of our existing infrastructure.  The telecommunications business will require additional investments to be considered complete and competitive.  We perform periodic evaluations of Empresa de Infovias S.A. and WAY TV, in order to determine their ability to run their businesses on a stand-alone and profitable basis, as well as to determine the need for an impairment reserve for this investment.  Although currently available projections do not indicate a need for an impairment reserve, we can not assure that such an impairment reserve will not be required or that our investment in the telecommunications sector will not have an adverse impact on our financial condition.

We operate without general third party liability and catastrophe insurance policies.

We do not have general third party liability insurance covering accidents and have not asked for bids relating to this type of insurance.  However, we may contract for this type of insurance in the future.  In addition, we have not asked for bids for, nor do we carry, insurance coverage for major catastrophes affecting our facilities such as earthquakes and floods, for business interruption risk or for operating system failures.  Accidents or catastrophic events may adversely affect our business, results of operations or financial condition.  See “Item 10.  Additional Information—Insurance.”

We will need short-term funds to pay and refinance our obligations.

On December 31, 2004, our total debt was R$4,167 million, of which R$1,417 million matures in 2005.

We will need funds in the short term to pay and refinance these obligations.  For this reason, we intend to refinance our debt profile in 2005 to lengthen maturities.  We plan to raise approximately R$1.5 billion in 2005.

We cannot assure you that we will be able to raise these funds prior to the maturities of our current debt obligations, in the amounts necessary or at competitive rates.  If the refinancing does not successfully take place, we may not be able to pay our debt.  On the other hand, if we simply pay our debt without refinancing, our investment program could suffer significant delays, which could adversely affect our business, results of operations or financial condition.

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We are exposed to foreign exchange rate risk.

As of December 31, 2004, approximately 26.9% of our total indebtedness was denominated in currencies other than the real (76.6% in U.S. dollars).  If the U.S. dollar/real exchange rate appreciates, our financing expenses will increase and our results of operations and financial condition could be adversely affected.  While 37.0% of our debt denominated in foreign currencies is subject to currency swaps that convert our foreign currency obligations into reais in order mitigate this risk, we cannot assure you that these hedging arrangements will be sufficient to avoid an adverse effect on our business, results of operations and financial condition in case of unfavorable exchange rate fluctuations.

We may incur losses in connection with pending litigation and arbitration.

We are currently defending several legal proceedings relating to civil, administrative, environmental, tax and other claims.  These claims involve a wide range of issues and seek substantial amounts of money.  Several individual disputes account for a significant part of the total amount of claims against us.  Our consolidated financial statements include reserves relating to litigation and arbitration claims totaling R$303 million as of December 31, 2004 (excluding labor-related matters) for probable and reasonably estimable losses and expenses we may incur in connection with pending litigation.  In the event that our reserves for litigation and arbitration claims prove to be insufficient, the payment of litigation claims in an amount in excess of the reserved amounts could have an adverse effect on our business, results of operations or financial condition.

Labor-related legal claims, strikes and/or work stoppages could have an adverse impact on our business.

Substantially all of our employees are covered by Brazilian labor legislation applicable to private sector employees.  We have entered into a collective bargaining agreement with the labor unions representing most of these employees.

We are currently defending a number of labor-related claims brought by our employees that generally relate to overtime and hazardous occupation compensation.  As of December 31, 2004, these employees were seeking, in the aggregate, approximately R$138.5 million in compensation, and at that date we had accrued a liability of approximately R$110.8 million for losses we expect from these claims. For a more detailed discussion of labor-related proceedings, see “Item 8.  Financial Information—Legal Proceedings—Labor and Pension Fund Obligations.”

We have not experienced any material labor unrest during the last four years.  Nevertheless, our operations might be interrupted by a labor disturbance in the future.  We do not carry insurance for losses incurred as a result of business interruptions caused by labor action.  In the event of a strike, we might face an immediate loss of revenue.

Contract disputes, strikes, legal claims or other types of conflicts relating to our employees or the labor unions that represent them may have an adverse effect on our business, results of operations or financial condition and our ability to maintain ordinary service levels or otherwise operate our business in the manner that our customers expect.

Foreign shareholders may not be able to enforce judgments against our directors or officers.

All of our directors and officers named in this annual report reside in Brazil.  Substantially all of our assets, as well as the assets of these persons, are located in Brazil.  As a result, it may not be possible for foreign shareholders to effect service of process within the United States or other jurisdictions outside Brazil upon these persons, attach their assets, or enforce against them or us in United States courts, or the courts of other jurisdictions outside Brazil, judgments predicated upon the civil liability provisions of the securities laws of the United States or the laws of such other jurisdictions.  See “Item 10.  Additional Information—Difficulties of Enforcing Civil Liabilities Against Non-U.S. Persons.”

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Effective control of CEMIG is subject to judicial challenge.

In connection with the purchase in 1997 of approximately 33% of our common shares by Southern Electric Brasil Participações Ltda., or Southern, the State Government entered into a shareholders’ agreement with Southern, granting Southern control over certain significant corporate decisions.  In 1999, the State Government filed a lawsuit seeking to nullify the shareholders’ agreement on constitutional grounds.  In August 2001, after several rulings and appeals, the Minas Gerais State Court of Appeals ruled that the shareholders’ agreement is null and void.  In December 2003, this ruling was appealed to the Superior Tribunal de Justiça (Superior Court of Justice), which upheld the Minas Gerais State Court of Appeals ruling.  The decision of the Superior Court of Justice is subject to request for amendment and therefore the effective control of CEMIG remains subject to further judicial challenge in the Supreme Court (Supremo Tribunal Federal).  As a result, Southern could retroactively challenge the legitimacy of certain decisions taken by our Board of Directors while these legal proceedings are pending.  See “Item 8.  Financial Information—Legal Proceedings—Shareholders’ Agreement” and “Item 10.  Additional Information—Material Contracts—Shareholders’ Agreement, dated June 18, 1997, between the State Government and Southern.”

Risks Relating to Brazil

The Brazilian government exercises a significant influence on the Brazilian economy.  Political and economic conditions can have a direct impact on our business.

The Brazilian government intervenes frequently in the country’s economy, in monetary, fiscal and regulatory policy.  Our business, results of operations or financial condition may be adversely affected by changes in government policies, and also by:

•                                          fluctuations in the exchange rate;

•                                          inflation;

•                                          instability of prices;

•                                          changes in interest rates;

•                                          fiscal policy;

•                                          other political, diplomatic, social and economic developments which may affect Brazil or the international markets;

•                                          control on capital flow; and

•                                          limits on foreign trade.

Measures by the Brazilian government to maintain economic stability, and also speculation on any future acts of the government, can generate uncertainties in the Brazilian economy and increased volatility in the domestic capital markets, adversely affecting our business, results of operations or financial condition.  If the political and economic situations deteriorate, we may face increased costs.

Inflation and certain governmental measures to curb inflation may contribute significantly to economic uncertainty in Brazil and could harm our business and the market value of the ADSs and our preferred shares.

Brazil has in the past experienced extremely high rates of inflation. Inflation, and some of the Brazilian government’s measures taken in an attempt to curb inflation, have had significant negative effects on the Brazilian economy. Since the introduction of the real in 1994, Brazil’s inflation rate has been substantially lower than in previous periods. However, inflationary pressures persist, and action taken in an effort to curb inflation, coupled with speculation about possible future governmental actions, have contributed to economic uncertainty in Brazil and

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heightened volatility in the Brazilian securities market.  According to the Índice Nacional de Preços ao Consumidor Amplo, or IPCA, a consumer price index, the Brazilian annual inflation rates were 12.5%, 9.3% and 7.6% in 2002, 2003 and 2004, respectively.  No assurance can be given that inflation will remain at these levels.

Future measures taken by the Brazilian government, including interest rate increases, intervention in the foreign exchange market and actions to adjust or fix the value of the real may trigger increases in inflation, and consequently, have adverse economic impacts on our business, results of operations and financial condition.  If Brazil experiences high inflation in the future, we may not be able to adjust the rates we charge our customers to offset the effects of inflation on our cost structure.

Substantially all of our cash operating expenses are denominated in reais and tend to increase with Brazilian inflation. Inflationary pressures may also hinder our ability to access foreign financial markets or may lead to further government intervention in the economy, including the introduction of government policies that could harm our business, results of operations and financial condition or adversely affect the market value of our preferred shares and as a result, our ADSs.

Exchange rate instability may adversely affect our business, results of operations and financial condition and the market price of the ADSs and our preferred shares.

The Brazilian currency has been devalued periodically during the last four decades. Throughout this period, the Brazilian government has implemented various economic plans and utilized a number of exchange rate policies, including sudden devaluations, periodic mini-devaluations during which the frequency of adjustments has ranged from daily to monthly, floating exchange rate systems, exchange controls and dual exchange rate markets. Although over long periods depreciation of the Brazilian currency generally has correlated with the rate of inflation in Brazil, devaluation over shorter periods has resulted in significant fluctuations in the exchange rate between the Brazilian currency and the U.S. dollar and currencies of other countries.

The real depreciated against the noon buying U.S. dollar by 9.3% in 2000 and by 18.7% in 2001. In 2002, the real depreciated 52.3% against the U.S. dollar, due in part to political uncertainty surrounding the Brazilian presidential elections and the global economic slowdown. Although the real appreciated 18.25% against the U.S. dollar in 2003 and a further 8.1% in 2004, no assurance can be given that the real will not depreciate against the U.S. dollar again.  On May 18, 2005, the noon buying U.S. dollar/real exchange rate was R$2.4625 per U.S.$1.00.  See “— Exchange Rates”.

There are no guarantees that the exchange rate between the real and the U.S. dollar will stabilize at current levels. Although we have managed our existing U.S. dollar debt obligations in order to protect against fluctuations in the dollar/real exchange rate, we could in the future experience monetary losses relating to these fluctuations. See “Item 11. — Quantitative and Qualitative Disclosures about Market Risk—Exchange Rate Risk” for information about our foreign exchange risk hedging policy.

Depreciations of the real relative to the U.S. dollar also create additional inflationary pressures in Brazil that may negatively affect us.  Currency depreciations generally curtail access to foreign financial markets and may prompt government intervention, including recessionary governmental policies.  Currency depreciations also reduce the U.S. dollar value of distributions and dividends on the ADSs and the U.S. dollar equivalent of the market price of preferred shares and, as a result, the ADSs. On the other hand, appreciation of the real against the U.S. dollar may lead to deterioration of the country’s current account and the balance of payments, as well as to a dampening of export-driven growth.

Changes in economic and market conditions in other countries, especially Latin American and emerging market countries, may adversely affect our business, results of operations and financial condition, as well as the market price of our preferred shares and ADSs.

The market value of securities of Brazilian companies is affected to varying degrees by economic and markets conditions in other countries, including other Latin American and emerging market countries. Although economic conditions in such countries may differ significantly from economic conditions in Brazil, investors’

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reactions to developments in these other countries may have an adverse effect on the market value of securities of Brazilian issuers. Crises in other emerging market countries may diminish investor interest in securities of Brazilian issuers, including us. This could also make it more difficult for us access the capital markets and finance our operations in the future on acceptable terms or at all.  Due to the characteristics of the Brazilian electricity industry (which requires significant investments in operating assets) and due to our financing needs, if access to the capital and credit markets is limited, we could face difficulties in completing our investment plan and refinancing our obligations which could adversely affect our business, results of operations and financial condition.

Risks Relating to the Preferred Shares and ADSs

The preferred shares and ADSs generally do not have voting rights.

In accordance with the Brazilian Corporate Law and our by-laws, holders of the preferred shares, and, by extension, holders of the ADSs, are not entitled to vote at our shareholders’ meetings, except in very limited circumstances.  Holders of ADSs may also encounter difficulties in the exercise of certain rights, included limited voting rights.  Under some circumstances, such as failure to provide the depositary with voting materials on a timely basis, holders of ADSs may not be able to vote by instructing the depositary.

Exchange controls and restrictions on remittances abroad may adversely affect holders of ADSs.

You may be adversely affected by the imposition of restrictions on the remittance to foreign investors of the proceeds of their investments in Brazil and the conversion of reais into foreign currencies.  The Federal Government imposed remittance restrictions for approximately three months in late 1989 and early 1990.  Restrictions like these would hinder or prevent the conversion of dividends, distributions or the proceeds from any sale of preferred shares, as the case may be, from reais into U.S. dollars and the remittance of U.S. dollars abroad.  We cannot assure you that the Federal Government will not take similar measures in the future.  See “Item 3.  Key Information—Exchange Rates.”

Exchanging ADSs for the underlying preferred shares may have unfavorable consequences.

The Brazilian custodian for the preferred shares must obtain an electronic certificate of registration from the Central Bank to remit U.S. dollars abroad for payments of dividends, any other cash distributions, or upon the disposition of the shares and sales proceeds related thereto.  If you decide to exchange your ADSs for the underlying preferred shares, you will be entitled to continue to rely, for five business days from the date of the exchange, on the depositary bank’s electronic certificate of registration.  Thereafter, you may not be able to obtain and remit U.S. dollars abroad upon the disposition of the preferred shares, or distributions relating to the preferred shares, unless you obtain your own certificate of registration under Resolution No. 2,689 of January 26, 2000, of the Brazilian Conselho Monetário Nacional, or National Monetary Council, which entitles foreign investors to buy and sell on the Brazilian stock exchanges.  If you do not obtain this certificate, you will be subject to less favorable tax treatment on gains with respect to the preferred shares.  If you attempt to obtain your own certificate of registration, you may incur expenses or suffer significant delays in the application process.  Obtaining a certificate of registration involves generating significant documentation, including completing and filing various electronic forms with the Central Bank and the Comissão de Valores Mobilíarios (the Brazilian securities regulatory body), or the CVM.  In order to complete this process, the investor will usually need to have a consultant or attorney who has expertise in Central Bank and CVM regulations.  Any delay in obtaining this certificate could adversely impact your ability to receive dividends or distributions relating to the preferred shares abroad or the return of your capital in a timely manner.  If you decide to exchange your preferred shares back into ADSs once you have registered your investment in the preferred shares, you may deposit your preferred shares with the custodian and rely on the depositary bank’s certificate of registration, subject to certain conditions.  See “Item 10.  Additional Information—Taxation—Brazilian Tax Considerations.”

We cannot assure you that the depositary bank’s certificate of registration or any certificate of foreign capital registration obtained by you may not be affected by future legislative or other regulatory changes, or that additional Brazilian restrictions applicable to you, the disposition of the underlying preferred shares or the repatriation of the proceeds from disposition could not be imposed in the future.

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The relative volatility and illiquidity of the Brazilian securities market may adversely affect our shareholders.

Investing in Latin American securities, such as the preferred shares or the ADSs, involves a higher degree of risk than investing in securities of issuers from countries with more stable political and economic environments and such investments are generally considered speculative in nature.  These investments are subject to certain economic and political risks, such as, among others:

•                                          changes to the regulatory, tax, economic and political environment that may affect the ability of investors to receive payment, in whole or in part, with respect to their investments; and

•                                          restrictions on foreign investment and on repatriation of capital invested.

The Brazilian securities market is substantially smaller, less liquid, more concentrated and more volatile than major securities markets in the United States.  This may substantially limit your ability to sell the preferred shares underlying your ADSs at a price and time at which you wish to do so.  The Bolsa de Valores de São Paulo — BOVESPA, or São Paulo Stock Exchange, the only stock exchange in Brazil upon which shares are traded, had a market capitalization of approximately US$241.8 billion as of December 31, 2004 and an average monthly trading volume of approximately US$9.5 billion for 2004.  In comparison, the New York Stock Exchange, Inc., or the NYSE, had a market capitalization of US$19.8 trillion as of December 31, 2004 and an average monthly trading volume of approximately US$968.2 billion for 2004.

There is also significantly greater concentration in the Brazilian securities market than in major securities markets in the United States.  The ten largest companies in terms of market capitalization represented approximately 66.9% of the aggregate market capitalization of the São Paulo Stock Exchange as of December 31, 2004.  The top ten stocks in terms of trading volume accounted for approximately 49.5% of all shares traded on the São Paulo Stock Exchange in 2004.  See “Item 9.  The Offer and Listing—Trading Market.”

Shareholders may receive reduced dividend payments if our net income does not reach certain levels.

Under the Brazilian Corporate Law and our by-laws, we must pay our shareholders a mandatory distribution equal to at least 50% of our adjusted net income for the preceding fiscal year, based on our financial statements prepared in accordance with the accounting practices adopted in Brazil, with holders of preferred shares having priority of payment.  In addition, our by-laws require us to pay holders of our preferred shares annual dividends equal to the greater of 10% of the par value of our shares or 3% of the book value of our shares.  If we do not have net income or our net income is insufficient in a fiscal year, our management may recommend at the annual shareholders’ meeting in respect of that year that the payment of the mandatory dividend should not be made.  However, under the guarantee of the State Government, our controlling shareholder, a minimum annual dividend of 6% of par value would in any event be payable to all holders of common shares and preferred shares issued up to August 5, 2004 (other than public and governmental holders) in the event that mandatory distributions were not made for a fiscal year.  See “Item 8.  Financial Information—Dividend Policy and Payments” for a more detailed discussion.

Holders of the ADSs and holders of preferred shares have less well-defined shareholders’ rights than holders of shares in U.S. companies.

Our corporate governance, disclosure requirements and accounting standards applicable to Brazilian companies are governed by our by-laws and by the Brazilian Corporate Law, which may differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States, such as Delaware or New York, or in other jurisdictions outside Brazil.  Your rights to protect your interests relative to actions taken by our Board of Directors or by our controlling shareholder may be less well defined and less well supported by established rules and judicial precedents than under the laws of certain jurisdictions outside Brazil.

Although Brazilian law imposes restrictions on insider trading and price manipulation, the Brazilian securities market is not as highly regulated and supervised as the U.S. securities market or markets in certain other

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jurisdictions.  In addition, rules and policies against self-dealing and regarding the preservation of shareholder interests are less developed and enforced in Brazil than in the United States, potentially disadvantaging holders of the preferred shares and ADSs.

Shares eligible for future sale may adversely affect the market price of the preferred shares and the ADSs.

Sales of a substantial number of shares or the perception that such sales could take place could adversely affect the prevailing market price of the preferred shares and ADSs.  As a consequence of the issuance of new shares or sales by existing shareholders, the market price of the preferred shares and, by extension, the ADSs, may decrease significantly.

You may not be able to exercise preemptive rights with respect to the preferred shares.

You may not be able to exercise the preemptive rights relating to the preferred shares underlying your ADSs unless a registration statement under the United States Securities Act of 1933, as amended, or the Securities Act, is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available.  We are not obligated to file a registration statement with respect to the shares relating to these preemptive rights, and we cannot assure you that we will file any such registration statement.  Unless we file a registration statement or an exemption from registration applies, you may receive only the net proceeds from the sale of your preemptive rights by the depositary or, if the preemptive rights cannot be sold, they will be allowed to lapse.

Item 4.           Information on the Company

Organization and Historical Background

We were organized in Minas Gerais, Brazil on May 22, 1952 as a sociedade de economia mista (a state-controlled mixed capital company) with limited liability and indefinite duration, pursuant to Minas Gerais State Law No. 828 of December 14, 1951 and its implementing regulation, Minas Gerais State Decree 3,710 of February 20, 1952.  Our full legal name is Companhia Energética de Minas Gerais–CEMIG, but we are also known as CEMIG.  Our headquarters are located at Avenida Barbacena, 1200, Belo Horizonte, Minas Gerais, Brazil.  Our main telephone number is (55-31) 3299–3711.

In order to comply with legal and regulatory provisions pursuant to which we were required to unbundle our vertically integrated businesses, we have incorporated two wholly-owned subsidiaries of CEMIG – Cemig Geração e Transmissão S.A., referred to as Cemig Generation and Transmission, and Cemig Distribuição S.A., referred to as Cemig Distribution.  Cemig Generation and Transmission and Cemig Distribution were created to carry out the activities of generation and transmission, and distribution, respectively.

On August 4, 2004 the State of Minas Gerais issued Law 15,290 governing the corporate restructuring of CEMIG.  Subsequently, ANEEL, by Resolution 407/2004 dated December 23, 2004, approved our proposal for transfer of the concessions, assets and liabilities to the two new companies created, with CEMIG being maintained as a holding company.  On December 30, 2004, an extraordinary general shareholders’ meeting of CEMIG authorized the transfer of assets and liabilities of CEMIG to the two wholly-owned subsidiaries – Cemig Generation and Transmission and Cemig Distribution.  On the same date, extraordinary general shareholders’ meetings of Cemig Generation and Transmission and of Cemig Distribution were held and approved capital increases of such subsidiaries.  Pursuant to such shareholders’ meetings, CEMIG subscribed newly issued shares of each such subsidiaries, which shares were paid in with assets of CEMIG. As a consequence of this process, the assets and liabilities of the generation and transmission assets and distribution assets, were transferred to Cemig Generation and Transmission and Cemig Distribution, respectively.  Cemig Generation and Transmission and Cemig Distribution began their operations on January 1, 2005.

The following chart shows our corporate structure as of May 18, 2005:

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Through our subsidiaries, we are the largest integrated concessionaire of electric power generation, transmission and distribution in Brazil.  We operate our generation, transmission and distribution businesses pursuant to concession agreements with the Federal Government.  Until 1997, we had individual concessions for each of our generation facilities and for various regions within our distribution area.  On July 10, 1997, we entered into new concession agreements with ANEEL that consolidated our various generation concessions into one agreement and our several distribution concessions into four distribution concessions covering the northern, southern, eastern and western regions of Minas Gerais.  On the same date, we also entered into a new concession agreement with ANEEL with respect to our transmission operations.  In connection with the unbundling, our concessions will be transferred to Cemig Generation and Transmission and Cemig Distribution, although we cannot assure you of the timing of that transfer as it will be determined by ANEEL.

At December 31, 2004,  we generated electricity at 47 hydroelectric plants,  four thermoelectric plants and one wind farm, and had a total installed capacity of 5,949 MW.  At the same date, we owned and operated 3,017 miles of transmission lines and 238,309 miles of distribution lines.  We hold concessions to distribute electricity in 96.7% of the territory of Minas Gerais.

The Brazilian electricity industry has undergone extensive regulatory restructuring as a result of which our electric generation, transmission and distribution businesses have been and will continue to be subjected to increased competition.  For a more detailed description of regulatory changes that affect our business, see “The Brazilian Power Industry” in Annex A.

Pursuant to Minas Gerais state legislation, our by-laws were amended in 1984 to allow us to participate in an expanded range of activities relating to the energy sector through separate companies.  In 1986, we created Companhia de Gás de Minas Gerais—GASMIG, or Gasmig, as a subsidiary to undertake the distribution of natural gas through pipelines located in Minas Gerais.  In December 2004 we sold a 40% stake in Gasmig to Petrobras Gás S.A – Gaspetro, or Gaspetro, and TSS Participações S.A, or TSS, both of which are wholly-owned subsidiaries of Petrobras S.A, for approximately R$154 million.  See “Item 10.  Additional Information—Material Contracts—Gasmig Shareholders Agreement and Association Agreement.”

Additional Minas Gerais state legislative changes enacted in 1997 authorized us to participate in non-energy activities that can be carried out using our operating assets.  In January 1999, we incorporated Empresa de Infovias S.A., a telecommunication service provider, as a joint venture with AES Força Empreendimentos Ltda., part of the AES Corporation Group.  In 2002, we purchased AES Força Empreendimentos Ltda.’s interest in Empresa de

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Infovias S.A.  We also provide consulting services and have entered into consulting agreements with electricity companies in several countries.

Brazil’s Energy Market

General

Traditionally, in the Brazilian electricity sector, generation, transmission and distribution activities are separated, but conducted by a small number of companies that had always been the property of either the Federal Government, or of governments of Brazil’s individual states.  In the last ten years, several companies controlled by the state were privatized, in an effort to increase efficiency and competition.  The previous administration stated its objective to privatize the state-controlled part of the electricity sector, but the present administration has stopped this process, and moved in a new direction toward implanting a “New Model” for the Brazilian electricity sector as set forth in Law No. 10,848, of March 15, 2004.

The New Model

The main objectives of the new model are to guarantee:  (i) security of supply; and (ii) reasonableness of rates.  To guarantee supply, the new model creates the requirements (a) that distributors must contract their entire load, and will be responsible for making realistic projections of demand requirements and (b) that building new hydroelectric and thermal plants will be determined in ways that best balance security of supply and reasonableness of rates.  The means of achieving reasonableness of rates are to be the following:  (a) all purchases of electricity by distributors are to be by auction, on the lowest-rate criterion; (b) contracting is to be through the Pool system, as described below; and (c) contracting of load will be separated into two types of transactions, both of which will always be by auction: (i) contracting of the electricity of the new plants, which will target expansion; and (ii) contracting of the electricity of the existing plants, which will target the existing electricity demand.

The new model also creates two environments for the contracting of electricity supply:  (i) the Regulated Contracting Environment (ACR), for contracting of electricity to meet the demands of distributors supplying captive consumers under regulated rates; and (ii) the free contracting environment (ACL), for contracting of energy to supply Free Consumers, through freely negotiated contracts.  Distributors will be allowed to operate only in the regulated environment, while generators may operate in both, maintaining their competitive characteristic.

Expansion of the sector will be executed by the concession-granting power.  Two new institutional agents have been created: (i) the Energy Research Company (EPE), a state-controlled company responsible for execution of the planning of expansion of generation and transmission; and (ii) the Electricity Trading Chamber (CCEE), a private company, which is the successor of the Wholesale Energy Market, and is responsible for management of the joint contracting of electricity to meet the needs of regulated consumers (the “Pool” system).

Regulation under the new model

The Brazilian electricity industry is regulated by ANEEL.  After the enactment of Law No. 10,848, ANEEL’s primary responsibility is to regulate and supervise the power industry in line with the policy to be dictated by the MME and to respond to matters which are delegated to it by the Brazilian government and by the MME.  ANEEL’s current responsibilities include, among others, (i) administering concessions for electricity generation, transmission and distribution activities, including the approval of electricity rates, (ii)  enacting regulations for the electricity industry, (iii) implementing and regulating the exploitation of hydroelectric resources, (iv) promoting the public bidding process for new concessions, (v) settling administrative disputes among electricity generation entities and electricity purchasers and (vi) defining the criteria and methodology for the determination of transmission rates.

Rates

Electric energy rates in Brazil are set by ANEEL, which has the authority to readjust and review rates in accordance with the provisions under the relevant concession contracts.  Each distribution company’s concession contract provides for an annual rate adjustment (reajuste anual).  In general, Parcel A costs are fully passed through

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to consumers.  Parcel A costs are the portion of the regular rate calculation formula, which provides for the recovery of certain costs that are not within the control of the distribution company.  Parcel B costs, which are costs that are under the control of the distributors, are restated for inflation in accordance with the General Market Price Index (Indice Geral de Preços do Mercado), or IGP-M index.

As part of our annual rate adjustment ANEEL, through Resolution No. 83 dated as of April 7, 2004, provided for an average increase in the rates that we can charge end users from April 2004 until April 2005.  In May 2004, ANEEL re-issued Resolution No. 83 and revised the basis for such average increase which resulted in lower rates. On April 6, 2005, through Resolution No. 87 ANEEL established an average rate adjustment of 23.88%. This adjustment includes a component of 1.67% representing an increase to recoup revenue we did not achieve in 2004 due to the lower rates under Resolution No. 83 as re-issued.

Concessionaires of electricity distribution are also entitled to periodic revisions (revisão periódica) every few years.  These revisions are aimed at (i) assuring necessary revenues to cover efficient Parcel B operational costs and adequate compensation for investments deemed essential for the services within the scope of each such company’s concession and (ii) determining the X factor, which is calculated based on expected productivity gains from increases in scale, evaluations by consumers (verified by ANEEL) and labor costs.

On April 8, 2003, we went through our first periodic rate revision and ANEEL established a 31.53% temporary average increase to be applied to our rates.  On April 4, 2005, through Resolution No. 71, ANEEL reconsidered such decision and established a 44.41% average increase to be applied to our rates.  In order to guarantee low rates to our end consumers, ANEEL only allowed us to reposition our rates up to 31.53% retroactive to April 8, 2003.  ANEEL has also indicated that the rate adjustments expected for the years from 2004 to 2007 will be adjusted to recover the difference between the average rate increase of 44.41% we were entitled to and the 31.53% rate adjustment that was authorized.  On April 8, 2005 our rate adjustment increase included a portion of the difference related to the difference between the average rate increase we were entitled to in 2004 and the rate adjustment authorized for that year.

In addition, concessionaires of electricity distribution are entitled to extraordinary review of rates (revisão extraordinária), on a case by case basis, to ensure their financial equilibrium and compensate them for unpredictable costs, including taxes, that significantly change their cost structure.

ANEEL has also issued regulations that govern the access to the distribution and transmission facilities and establish the rate for use of the local distribution grid, or Distribution Usage Rates (“TUSD”), and the rate for the use of the interconnected transmission grid, or Transmission Usage Rates (“TUST”).  The rates to be paid by distribution companies, generators and independent customers for use of the interconnected power system are reviewed annually.  The review of the TUST takes into account the revenues that are permitted of transmission concessionaires pursuant to their concession contracts.  For more detailed information regarding the rate-setting structure in Brazil, see “The Brazilian Power Industry—Rates for the Use of the Distribution and Transmission Systems” in Annex A.

Concessions

Under the Brazilian Constitution, companies seeking to construct or operate a generation, transmission or distribution facility in Brazil are required to apply for an authorization or a concession from the Federal Government which is generally granted through a public bidding process conducted by ANEEL.  Concessions grant exclusive rights to generate electricity in a particular plant, and to transmit or distribute electricity in a particular area for a specified period of time, generally 35 years for new generation concessions, 30 years for new transmission and distribution concessions, and 20 years for the renewal of existing concessions.  For more detailed information regarding concessions, see “The Brazilian Power Industry—Concessions” in Annex A.

Land Acquisition

The concessions granted to us by the Federal Government do not include a grant of the land upon which the plants are located.  Electricity concessionaires in Brazil typically have to negotiate with the individual

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landowners to obtain needed land.  However, in the event that a concessionaire is unable to obtain needed land in this way, such land may be condemned for the concessionaire’s use through specific legislation.  In cases of governmental condemnation, the concessionaires may have to participate in negotiations relating to the amount of compensation with landowners and the resettlement of communities to other locations.  Our resettlement policy has generally resulted in the settlement of condemnation disputes.

Unbundling under the New Industry Model

Law No. 10,848/04, which provides for the new industry model, prohibits holders of distribution concessions, permissions or authorizations that operate in the interconnected power system from:  (i) performing activities related to generation, transmission and sale of energy to Free Consumers at freely negotiated prices; (ii) holding interest in other companies, directly or indirectly, other than (a) in companies whose corporate purpose is to manage financial resources necessary for rendering of services or (b) as provided in the concession contracts; or (iii) performing activities outside their corporate purpose, except as provided by law and the concession contracts.  These restrictions do not apply to distributors:  (i) supplying energy to isolated electricity systems; (ii) supplying their own market, provided such market has a demand of less than 500 GWh/year and the totality of energy produced is destined to such market; or (iii) when funding, investing or borrowing funds destined to the distributor itself or a company of the same economic group, subject to prior agreement by ANEEL.  Similarly, holders of generation concessions or authorizations that operate in the interconnected system may not be affiliates or controlling shareholders of companies which are responsible for distribution activities.

Holders of concessions, permissions and authorizations for generation and distribution have 18 months in which to adapt to the rules for unbundling referred to above, from the date of publication of Law No. 10,848/04 – that is, until September 2005.  ANEEL may extend this period once, for 18 months, if the concessionaire is unable to comply with the requirements for reasons beyond its control.

In order to comply with regulatory provisions pursuant to which we were required to unbundle our vertically integrated businesses, we have incorporated two wholly-owned subsidiaries of CEMIG – Cemig Generation and Transmission. and Cemig Distribution – created to carry out the activities of electricity generation and transmission, and distribution, respectively.  For more detailed information regarding these entities and the corporate restructuring of CEMIG, see “—Organization and Historical Background.”

Unbundling in the Concession Contracts

The obligation to implement the unbundling of the generation, transmission and distribution activities in separate operational companies was already provided for in several concession contracts.  According to such contracts, the corporate reorganization should have been concluded by December 31, 2000, but we failed to comply with this deadline.

As a result of such non-compliance, ANEEL imposed a fine of R$3.7 million on us at the beginning of 2001, which we contested, achieving not only its cancellation by ANEEL, but also a new deadline for completing the corporate reorganization, namely September 21, 2002.  Since we also failed to complete the process by the new deadline, ANEEL imposed another fine on us, of R$5.5 million, on November 11, 2002.  On April 3, 2003 we appealed this fine, applying for its suspension.  On February 23, 2005, ANEEL issued a ruling reducing the fine to R$2.7 million.  We continue to contest this fine.  No reserve has been recorded for this potential claim since we believe we have a meritorious defense against this and any other possible penalties that may be imposed regarding this matter.  We believe ANEEL is likely to analyze these proceedings taking into consideration the new regulations of the electricity industry, so that in practice, it is unlikely that there is going to be an outcome before September 2005.

Capital Expenditures

Capital expenditures for the years ended December 31, 2004, 2003 and 2002, in millions of reais, are as follows:

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We currently project total capital expenditures of approximately R$2,068 million in 2005.  The principal uses of these expenditures are expected to be for expansion of our distribution infrastructure and increases in our generation capacity.

Business Overview

General

During 2004, we generated at our own plants approximately 64.5% of the aggregate amount of energy sold by us to end users or lost due to technical and non-technical reasons, and we purchased the balance from third parties.  We are required, like other Brazilian electric utilities, to purchase electricity from Itaipu in an amount determined by the Federal Government based on our electricity sales.  See “—Generation and Purchase of Electric Power—Purchase of Electric Power—Itaipu.”  In addition, we purchase energy from other concessionaires and the interconnected power system.  See “—Generation and Purchase of Electric Power—Purchase of Electric Power—Interconnected Power System.”  We also purchase energy generated by self power producers, or SPPs, and independent power producers, or IPPs, that are located within our concession area.

The following table sets forth certain information, in GWh, pertaining to the electricity that we generated, purchased from other sources and delivered during the periods specified:

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ELECTRIC ENERGY BALANCE (CEMIG MARKET)

(1)                    In 2004 there was a change in the method of calculating and recording transactions in the wholesale market and with other companies, as stated in Notes 5 and 6. This change is responsible for the variation in the figures for sources and demand from 2003 to 2004.

(2)                    Discounting the losses attributed to generation (637 GWh) and the internal consumption of the generating plants (22GWh).

(3)                    Up to 2003, these portions referred to the total amounts of energy available and demand. Beginning in 2004, the short-term transactions on the CCEE and with other companies are included in the items “Electricity bought from the CCEE and other companies” and “Electricity delivered to the CCEE and other companies”.

(4)                    Includes the generation by the Pai Joaquim small hydro plant.

(5)                    In previous years, this portion represented contracts and the physical interchanges between CEMIG’s network and the national grid, and also “optimization” supply.

(6)                    Beginning in 2004, this amount refers to contracts, purchases and sales of electricity under the CCEE, including the Energy Reallocation Mechanism (Mecanismo de Realocação de Energia).

(7)                    Includes electricity delivered to consumers outside the concession area.

(8)                    Includes 270 GWh of Initial Contracts and bilateral contracts with other agents of the CCEE.

Generation

According to ANEEL, at December 31, 2004, we were the seventh largest electric power generation concessionaire in Brazil as measured by total installed capacity.  At December 31, 2004, we generated electricity at 47 hydroelectric plants, four thermoelectric plants and one wind farm and had a total installed generation capacity of 5,949 MW, of which hydroelectric plants accounted for 5,764 MW, thermoelectric plants accounted for 184 MW and our wind farm accounted for 1 MW.  Seven of our hydroelectric plants accounted for approximately 84% of our installed electric generation capacity in 2004.  We supplied approximately 93% of the electricity consumed in Minas Gerais during 2004.  During the year ended December 31, 2004, we generated approximately 64.5% of the aggregate amount of electricity we delivered to end users or lost due to technical and non-technical reasons.  See “—Energy Losses.”

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Transmission

We are engaged in the electric power transmission business, which consists of transporting electric power from the facilities where it is generated to the distribution networks for delivery to end users.  We transport energy produced at our own generation facilities as well as energy that we purchase from Itaipu, the interconnected power system and other concessionaires.  Our transmission network is comprised of power transmission lines with a voltage capacity equal to or greater than 230 kV and is part of the national transmission grid regulated by the ONS.  See “The Brazilian Power Industry” in Annex A.  As of December 31, 2004, our transmission network in Minas Gerais consisted of 1,344 miles of 500 kV lines, 1,206 miles of 345 kV lines and 467 miles of 230 kV lines, as well as 32 substations with a total of 94 transformers and an aggregate transformation capacity of 15,393 MVA.

Distribution

We have a distribution concession in Minas Gerais that grants us rights to supply electric energy to consumers within our concession area except for consumers that may be eligible, in accordance with the legislation, to become Free Consumers (currently consumers with demand equal to or greater than 3 MW).  Our concession area covers approximately 219,103 square miles, or 96.7% of the territory of the state.  As of December 31, 2004, we owned and operated 238,309 miles of distribution lines, through which we supplied electricity to nearly 5.9 million customers.  At December 31, 2004, we were the largest electricity distribution concessionaire in Brazil in terms of GWh sold to end users.  Of the electricity we supplied to final customers as of December 31, 2004, 61.5% was to industrial customers, 17.4% was to residential customers, 9.4% was to commercial customers and 11.7% was to rural and other customers.  These figures include the energy sold by Barreiro and Pai Joaquim of 73 GWh and 29 GWh, respectively, which were not consolidated in our financial statements.

Other Businesses

While our main business consists of the generation, transmission and distribution of electric power, we also engage in the business of distributing natural gas in Minas Gerais through our majority-owned subsidiary Gasmig.  We also engage in the telecommunications business through our consolidated subsidiary Empresa de Infovias S.A., a company created for the purpose of providing a fiber-optic and coaxial cable network installed along our transmission and distribution lines through which telecommunication services can be provided.  We are also engaged in the national and international consulting business through our subsidiary Efficientia S.A.

Revenue Sources

The following table shows the revenues attributable to each of our principal revenue sources, for the periods indicated: