States and Government Companies Murilo Barella Brasília – 12 Março 2013

States and Government Companies

Murilo BarellaBrasília – 12 Março 2013

PSEs in Brazil: History

• after World War II: State increases its economic actions, interfering on goods production and services provision = Public Sector Enterprises (PSEs)

• 1980 and 1990: State restricts its activities as goods and services provider = privatizations

• today:today: society choose to maintain several enterprises under the State property.

Department of Coordination and Governance of State Enterprises -

DEST

• Mission:

Improve the state's role as a shareholder of PSEs, encouraging the adoption of corporate governance practices and leveraging the investments of the State for the benefit of society

Department of Coordination and Governance of State Enterprises -

DESTAttributionsAttributions• Coordinate the PSEs budget elaboration and to monitor its

execution, including the fiscal goals and investments

• Consolidate and inform PSEs’ economical and financial data

• Approve PSEs remuneration and pension funds policies

• Encourage the adoption of corporate governance best practices

The Universe of PSEs in Brazil

According to the activityNUMBER OF COMPANIES

ACTIVITY NUMBERS 63 19 19 16 9 3 4 4 10

Total 147

Petroleum, Derivatives and Natural GasElectric EnergyFinance SectorServicesInfrastructureTransportResearchIndustryOthers

The Universe of PSEs in Brazil

According to the control

Directly 44 (Controlled PSEs)

Indirectly 103 (Controlled by the holding)

Total 147

Number of Employees

108.392 - 72.380 277.972 26.489 1.129 12.225 - 10.736 1.277

9.248 - 13.918 4.753

Total 253.388 285.131 DATE: 2010-12-31

112.081 - 2.675 - 2.914 - 5.993 -

CEF (1) 83.206 24.274 1.100 -

Total 207.969 24.274

Productive Sector Nº Employees Nº OutsourcedBrazilian Post and Telegraph Corporation (ECT) PETROBRÁS Group ELETROBRÁS GroupBrazilian Company of Airport Infrastructure (INFRAERO)Federal Data Processing (SERPRO)Brazilian Agricultural Research Corporation (EMBRAPA)Others

Banks Nº Employees Nº OutsourcedBank of BrazilBrazilian Development Bank (BNDES)Bank of AmazonBank of Northeast

Others

(1) Economic and f inancial institution

Investments(Historical)

2002* (…) 2009** 2010*** 2011***

963 2.981 3.168 4.9363.778 35.912 44.744 54.782

246 810 1.009 3.052

353 1.157 1.478 2.072Total 5.340 40.860 50.400 61.791

US$ Million

Productive Sector

Eletrobrás GroupPetrobrás Group Others

BanksPublic Banks

* Currency rates (20021-12-31) – 3,5333 Real/Brazil = 1 USD

** Currency rates (2009-12-31) – 1,7412 Real/Brazil = 1 USD

*** Currency rates (2009-12-31) – 1,6662 Real/Brazil = 1 USD

Public Investments(Historical)

Fiscal Budget

PSEs

Overall_____________

Fonte: DEST and Ministry of Finance.

Public Investments in Brazil (% GDP)

Financial Results(Dec. 2010)

312.06988.165

540.654

486.840324.103

5.078142.733240.436

PETROBRÁS 186.187ELETROBRAS 42.330

477.079

30.27339.550

1.1611.3079.813

AssetsProductive Sector US$ Million

Petrobrás GroupEletrobrás GroupBrazilian Agricultural Research Corporation (EMBRAPA)

BanksBank of BrazilBrazilian Development BankBank of AmazonBank of NortheastCEF (1)

Currency rates (2010-12-31)

1,6662 Real/Brazil = 1 USD


Shareholders' equity (PL)Productive Sector US$ Million

Brazilian Agricultural Research Corporation (EMBRAPA)Banks

Bank of BrazilBrazilian Development BankBank of AmazonBank of NortheastCEF (1)




Financial Results(Dec. 2010)

PETROBRÁS 28.242ELETROBRAS 16.456

11.0498.6181.418

3181.631

PETROBRÁS 21.119 ELETROBRAS 1.349

7.0245.949

85188

2.259

Net Operating RevenuesProductive Sector US$ Million





Net IncomeProductive Sector US$ Million





PSEs• Arranged mostly in two forms: stock and public companies

• Legal personality, administrative, budgetary and financial autonomy to achieve their social function and fulfill their corporate purposes

• This autonomy(1) does not exclude the control by the State and the society, which is made by the National Congress through the Brazilian Court of Audit (TCU), by the Department of Coordination and Governance of State Enterprises (DEST) and by the Office of the Comptroller General (CGU), for example

• General Rule for Bids(2) - the conditions and regulations for bids, direct acquisitions and conventions that apply to the hiring of works, services and acquisitions

• Governed by the Brazilian Law of Corporations, and in the case of public banks, by the applicable laws of the entire financial system (Central Bank)

(1) The SOEs’ autonomy varies according to their economic dependence: more financially independent they are greater is their autonomy(2) The 1988 Federal Constitution

Regulation of PSEs in Brazil PSEs are ruled by the same laws of private enterprises, including

rights and obligations in the following fields: – Civil– Commercial– Labor (to perform contracting of employees only by means of public examination1)–Tax

The public banks – also to control of regulation institutions such as

the Securities and Exchange Commission of Brazil (CVM), the Brazilian Stock Exchange (BOVESPA) and the Central Bank (BACEN).

The Basel Index: minimum percentage of capital demanded (8.0%). Brazil 11% for Basel Index purposes (Central Bank) – public banks

(~20%)

(1) The 1988 Federal Constitution

The State Ownership Function

The Ministry of Planning

The sector Ministry

The Ministry of Finance

PSEs

The State as a Shareholder

Ministry of Planning, Budget and Management (DEST) establish corporate governance guidelines approve the allocation of income approve the bylaws and capital increases fix the Board members remuneration, and to appoint one Board member

Ministry of Finance approve the financial statements authorize the issuance of securities and the debt situation appoint one Fiscal Council member represent the State at the shareholders meetings

Sector Ministry gives orientation for the investment strategy sets out the board of directors appoints the majority of the non executive Board and Fiscal Council members

Responsability for Governance

- Brazilian Stock Exchange (BOVESPA)

- Securities and Exchange Commission of Brazil (CVM)

- Superintendence of Private Insurance (SUSEP)

- Central Bank (BACEN)

- Independent External Audit

- National Congress

- Brazilian Court of Audit

- Department of Coordination and Governance of State Enterprises

- National Treasury Secretariat

- Internal Audit

- Board of Directors

- Fiscal Council

- Audit Committees

- Office of the Comptroller General

PSEs

PSE’s Corporate Governance Structure

Fiscal

Internal

Shareholders Meeting

Council

Board of Directors

CommitteesAudit

Chief Executive Officer

Board Board Board

Principes:- Ethics- Transparency- Equity- Accountability- Corporate responsibility

Instruments:- Bylaws- Code of ethics- Guidance Manuals

Corporate Governance System

FiscalShareholders Meeting

Council

Board of Directors

Chief Executive Officer

Board Board Board

Vote

Orientation

Sectorial MinisterInvestment policyand indication

Priorities, government guidelines

Shareholders

Indication

Supervises under the management aspect

Supervises

Relations with the market

Setting strategic guidelines

Shareholders(1)

(1) Ministry of Planning and Ministry of Finance represent the State at the shareholders meetings

Interministerial Corporate Governance and Federal Governmente Management of

Participation Comission(CGPAR)

Authority to decide and control the execution of the proposed guidelines

Members:

• Minister of State of Planning, Budget, and Management• Minister of State of Finance• Chief of Presidential Staff Office• Other Ministers of State (subject is under his portfolio)

Executive Group of technical and management support(1)

(1) DEST + National Treasury Secretariat (STN) + Presidential Staff Office (CC)

CGPAR proposed guidelines

Number 02 – December 2010:

Binding of the internal audit of the Board of Directors;

Adoption or strengthening of actions that have to give transparency to the company's activities and the use of public resources, the emphasis on advertising decisions and financial flows, such as accountability to society;

Emphasis on independence, impartiality and professionalism of the agents making up the frames of internal control;

Internal audit of each company will be restricted to the execution of their typical activities, preventing the diversion of functions and preserving its neutrality and impartiality;

Adoption of specific regulations for the body of internal audit;

Internal audit can be the basis of risk management advice to senior management, and

Internal audit should maintain institutional relations with the organs of control (CGU and TCU, for example).

CGPAR proposed guidelines

Number 03 – December 2010:

The segregation of function between the chairman of the board and chief executive of the company;

The practice of holding executive sessions without the presence of chairman and directors, when they are members of the board;

The approval of the annual audit plan and the annual audit report by the Board without the presence of the CEO at the meeting of the college;

Creating support committees for decisions of the board, according to the evaluation of the cost benefit of such a measure;

The implementation or enhancement of the formal performance evaluation of management and the board of directors;

The establishment of internal rules for evaluating the management and the board of directors, and

The highest and lowest remuneration must include notes to financial statements.

END

E-mail: [email protected]

States and Government Companies Murilo Barella Brasília – 12 Março 2013

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