The year 2003 was marked by favorable international conditions, with no external turmoil that could adversely affect the economies of emerging markets. Nevertheless Brazil conservatively chose to stick to a restrictive monetary policy throughout the first semester, which directly affected the productive sector and postponed the recovery of the job market and income levels. The country recorded a negative GDP variation (minus 0.2% * ) in the year.

In contrast, some specific characteristics of Paraná put the State on a different pace of growth than the rest of the country in 2003, as its GDP increased by 3.41% -- and index higher than the national average. This development was due not only to structural factors, such as geographic location and availability of infrastructure, but also to circumstantial factors and to the development of State-specific industries. These last two factors were simultaneous, as Paraná increased and diversified its agribusiness, particularly those activities that, owing to the recovery of the world economy, benefited from greater international demand and better market prices. Quality and productivity gains in our regional production have allowed the State to increase its participation in international markets such as the Chinese soy market and the European meat markets.

As it is directed in large measure to the international market, the State's industrial sector was able to raise its output by 3.0% in 2003, while the national industry average growth rate was no higher than 0.3%. Twelve industrial segments in Paraná recorded positive rates in the year. The mechanics sector, for instance, exhibited an increase of 18.9% in output and had a significant impact on the overall figures due to its weight in the sector. The commercial sector was benefited by major investments in supermarkets and shopping malls, attracted by the State's average income (which, according to surveys, exceeds the national average, even though the average income in Paraná also declined in 2003, as it did nationwide, on account of the economic policy in effect and its impact on the productive sector).

Regulatory background

In the regulatory scenario, 2003 was marked by an intense debate between power sector representatives and federal government agencies over the introduction of a new model for the industry. As a result, on December 11 th , Provisional Measure no. 144 was enacted and on March 15 th 2004 converted into Law no. 10,848, which sets forth the basic guidelines for power distribution, generation, and transmission.

The distribution business is now oriented towards network service and sales to captive customers; distribution operations cannot remain attached to power generation, transmission, and commercialization. Under the new model, electrical power shall be purchased through public bidding carried out by the Chamber for Commercialization of Electrical Power - CCEE (pool), self-dealing being prohibited. Nevertheless COPEL is seeking a judicial ruling to compel ANEEL to recognize its Amendment to the Initial Contract as effective up to 2015. The Company claims a fair return for its investments in power generation and tariff affordability.

Other regulatory decisions with a major impact upon the power business were the establishment of universalization goals for the electricity service; the creation of incentive programs for alternative electricity sources (the "Proinfa"); the beginning of COPEL's regular rate review, to be completed by June 2004, and financing for distribution companies due to the postponement of the Portion A compensation. On October 20 th 2003, BNDES approved a R$ 180 million loan for COPEL in connection with the deferment of the Portion A Compensation Account (CVA) from June 2003 to June 2004, under " Portaria Interministerial" MME/MF 116/03. However, shortly thereafter, under Law 10.762 - which created an emergency program to assist power distributors - such loans were no longer permitted for state-controlled companies, such as COPEL. Such measure was established on grounds that financing for state-controlled companies should be considered as "over the limit" and therefore regulated by the National Monetary Council. On March 12 th 2004, the Ministry of Mines and Energy requested authorization from the Finance Ministry for such loan, which so far has not been granted.

* Source : IBGE