n Dilma Rousseff talks tough n Redefining prioritiesn Infrastructure issuesn Mining notesn Banking & financen Economy in brief

n Libra tender newsn Oil & gas in briefn Petrobras newsn Biofuels in briefn Electricity sectorn Science & technology

n Politics in briefn Legal issuesn Defense issuesn Social issues

n Diplomatic briefsn International trade

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Viewpoint economy & Business energy & enVironment politics, law, society international affairs

It is a tradition dating back to 1948 that the inaugural speech at the uN General Assembly is given by Brazil, and this year was no exception.

On 24 September, President Dilma Rousseff opened the 68th session of the General Assembly with a forceful address in which she proposed the creation of a multi-lateral civilian framework for governance of the Internet that would define norms and mechanisms to prevent espionage by any countries, along with the adoption of guarantees of data protection.

Rousseff also spoke about the need to reconfigure the united Nations, since Brazil aspires to a permanent seat

on the uN Security council. With respect to the Syrian question, the president advocated diplomatic settle-ment on the use of toxic gases by means of international inspections, as proposed by Russia.

Rousseff’s address to the General Assembly was a tough one. She expressed “indignation” and “rejection” of spy-ing on the Brazilian government, enterprises, and citizens conducted by the National Security Agency (NSA). She demanded an explanation, apology, and guarantee that such procedures will not be repeated.

She equated the espionage by American intelligence agencies with a grave violation of human rights and …

Dilma rousseff talks tough at the united nations

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civil freedom and she proposed that the united Nations exercise leadership in an effort to regulate the behavior of states with regard to these technologies.

While she did not mention uS President Barack Obama, in an address that followed hers, he announced that the uS government has begun to review procedures for col-lecting intelligence. On 25 September, Rousseff said that the future of the bilateral relationship depends on the end of uS espionage.

the other BRIcS countries (Russia, India, china, and South Africa), officially expressed their support for the Brazilian position regarding espionage through their foreign ministers, and on 26 September manifested their collective concern about the unauthorized interception of the communications and data of citizens, enterprises, and government authorities, affecting national security and individual rights.

the rift between the united States and Brazil will foresee-ably have other consequences. One tangible one is that Rousseff has postponed her decision to procure Boeing fighter aircraft to re-equip the Brazilian Air Force – for an estimated uS$5 billion – until 2015. the decision would probably have been announced during the president’s planned state visit to Washington on 23 October, which she has cancelled.

economy & Business

redefining priorities

An interview with leading Brazilian economist Fabio Giambagi was published in the 29 September issue of O Estado de São Paulo newspaper. Giambagi is the author of more than 20 books on the Brazilian economy and has just produced another one, containing proposals for the government for 2015–18 (i.e., for the next president). In the interview he asserts that the model of the Brazilian economy based on demand has been exhausted, leading the country from a current account surplus to a deficit of close to 4 percent of GDP.

the country’s capacity for growth is conditioned by demographic factors and is limited to 3 percent, Giam-bagi noted. For Brazil to grow more, it will be necessary to increase productivity. this will in turn require qualitative improvements in education – just increasing education expenditures will not solve the problem.

It will be necessary to refocus priorities, he suggested, by drastically limiting public sector expenditures, improving public services, opening the economy, and undertaking a massive concession program – which the government has started to do. the key to all this is effective leadership.

VistaBrazil is published monthlyProduced by Prismax ConsultariaEditor: Georges D. LandauProduction: Blakeley Words+Pictures

© 2013 · Veirano Advogados and Prismax Consultoria All text rights reserved

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DisclaimerThis newsletter is intended to provide general information regarding recent events, developments, and trends in Brazil. It is not intended, nor should it be relied on, to provide legal analysis or legal advice on any of the information covered in the newsletter. Veirano Advogados and Prismax Consultoria cannot ensure against or be held responsible for inaccuracies. To the full extent permissible by law Veirano Advogados shall have no liability for any damage or loss (including, without limitation, financial loss, loss of profits, loss of business, or any indirect or consequential loss), however it arises, resulting from the use of any material appearing in this publication or from any action or decision taken as a result of using information presented in the publication.

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infrastructure issuesthe road not traveled the tender for highway BR-262 from Espírito Santo to Minas Gerais, held on 13 September, failed due to the lack of interested bidders. Finance Minister Guido Mantega blamed “political reasons,” inasmuch as the two states are governed by the Brazilian Social Democracy Party (PSDB) opposition.

the failure has led the government to reconsider the proce-dures applicable to such tenders in order to afford greater security to investors, starting with the elimination of the so-called political risks entailed by the participation of the National Department of transport Infrastructure (DNIt).

the Minas Gerais–Goiás highway BR-050, however, attracted eight bidders. the auction, held on 18 September, was a surprise in two respects. First, the winning consortia of nine service companies, new to the sector, beat Brazil’s leading contractors. Second, the winning bid offered a tariff over 42 percent lower than the ceiling established

by the government. the investment required to manage BR-050 will be R$3 billion (uS$1.38 billion).

airport tender mitigatedthe failure of the tender for highway BR-262 and the lack of interest by leading oil companies in the tender for the Libra field has prompted the government to postpone the auction of Galeão (Rio de Janeiro) and confins (Belo Horizonte) airports from 31 October to 22 November, and to mitigate the terms for its concession.

the principal change is that bidders must have operated airports with at least 22 million passengers/year (not 35 million) for Galeão and at least 12 million passengers /year for confins.

railway privatization definedOne year after announcing railway privatizations, the government is now preparing legislation to clarify how it will function. concessions for 10,000 km of railways over a period of 30 years will need investments of R$91 billion (uS$41.8 billion).

port model rejiggedAfter having modified the models for privatization of highways, railways, and airports, the government has decided to change that of ports – in light of suggestions received from the private sector.

In fact, numerous complaints have been made about the quality of the tender announcements, most of which are prepared by a private firm constituted in 2009 by nine banks, Estruturadora Brasileira de Projetos (EBP). EBP functions in an advisory capacity to the government.

Its member banks are

n Banco do Brasiln Bradescon citibankn Espírito Santon Itaú BBAn HSBcn Santandern Votorantim n National Bank for Economic and

Social Development (BNDES).

EBP has produced projects totaling over R$20 billion (uS$9.2 billion) in investment. It is being faulted for inad-equate rates of return, inaccurate investment estimates, and tariffs not conducive to profits.

the fact is that EBP has produced projects in record time, some of which have been rejected by the Federal court of Accounts (tcu). Specifically, underestimates of the estimates of the investment needed – sometimes by as much as 30 to 50 percent (as in the case of BR-262) – help to explain the lack of interest from potential investors.

A tender for highway BR-262 on 13 September failed to attract interested bidders

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procuring a portDutch trading company trafigura and Abu Dhabi invest-ment and development company Mubadela have jointly acquired 65 percent of the Port of the Southeast (owned by Eike Batista’s MMX) for R$4.3 billion (uS$2 billion), and have thus entered the Brazilian infrastructure sec-tor. the Port of the Southeast, at Itaguaí, Rio de Janeiro, serves primarily as a channel for iron ore exports.

a new infrastructure playerQueiroz Galvão, a major Brazilian construction and engi-neering conglomerate, has decided to create a subsidiary for infrastructure, QG Infra. It will operate mainly in the logistics and sanitation sectors, a market of nearly R$20 billion (uS$9.2 billion).

waterways to carry commoditiesHidrovias do Brazil has begun to earn revenue and is investing R$800 million (uS$368 million) to export agricultural commodities from the center west of Brazil through waterways in the north of the country. In addi-tion, banks Santander, Itaú, IDB, IFc, and Mitsui will lend the company uS$238 million (uS$109 million) to acquire barges to transport iron ore produced by Vale through the Paraná–Paraguay waterway.

mining notesfunds but no frameworkBetween 2012 and 2016, uS$75 billion is likely to be invested in the Brazilian mining sector, of which uS$46 billion will be in iron ore projects alone. that represents a rate of uS$15 billion per annum. Yet the mining sector feels unsettled; the lack of a new regulatory framework makes investment infeasible.

Vale to shed the inessentialsSpeaking on 24 September at the 15th Brazilian Mining congress, held in Belo Horizonte, Vale president Murilo Ferreira said that the company plans to divest some non-core assets, such as oil and gas concessions and bauxite and aluminum holdings.

Vale’s proposed sale of its 40 percent share in Mineração Rio do Norte (MRN), a leading bauxite producer at 18 million tons per annum, is about to unleash fierce competition among large aluminum producers ALcOA, Rio tinto, Alcan, BHP Billiton, and Norsk Hydro (of which Vale is also divesting its 22 percent share).

MRN is a consortium formed in the 1970s, and has as its shareholders ALcOA (18.2 percent), BHP Billiton (14.8 percent), Rio tinto (12 percent), Votorantim Metais cBA (10 percent), and Norsk Hydro (5 percent), in addition to Vale. the sale of its shares to the other companies could yield up to uS$800 million.

potassium project unveiledOn 26 September Vale announced that its potassium production project at carnalita, in the state of Sergipe, will soon come on stream. the company has put up to uS$1.8 billion into the project.

anglo american in BrazilAnglo American celebrates the 40th anniversary of its presence in Brazil this year. Since 2007 it has invested uS$18 billion in the country, uS$8.8 billion of it in the giant iron ore mining project know as Minas–Rio. Located, unsurprisingly, in the states of Minas Gerais and Rio de Janeiro, the project will come on stream in 2014 with a capacity 26.5 million tons, with room for expansion to 30 million tons.

Anglo American president Mark cutifani said that within the next few years the Brazilian market will represent 30 percent of the company’s global market.

mining code ossifiesthe government in September withdrew the urgency request for legislative review of the new mining code, which will at best enter into force in 2015. A Senate report states that the new code is already obsolete – even more so than the existing one, which dates back to 1967.

Banking & financegrounds for optimismSpeaking on 18 September before the Mixed Budget committee of the Brazilian congress, central Bank presi-dent Alexandre tombini found grounds for optimism, with a decline in inflation and some dynamism in the economic recovery.

He indicated that inflation had peaked in June but then resumed its trajectory of decline, noting that policies to combat inflation were reflected in the improved index of consumer and retail confidence. Since the beginning of dollar auctions by the central Bank, the real has appreci-ated by 8 percent.

corroborating this positive overview of the Brazilian economy, the Bovespa rose 2.6 percent on 18 September to reach nearly 56,000 points. Industrial output rose 1.15 percent in August. …

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testifying before the Senate’s commission on Economic Affairs, tombini admitted on 24 September that inflation remains at uncomfortable levels but reiterated that it has resumed a downward trend. As for foreign exchange, he said that in the short term it adds to inflationary pressure, but in the medium and long term it will help the Brazilian economy.

containing inflationIn an interview published by O Estado de São Paulo on 7 September, Persio Arida, former president of the central Bank, said that the rise in Brazilian inflation can be contained only by increasing the Selic rate to at least 9.1 percent, with an exchange rate of R$2.30 to the uS dollar .

Barbosa speaks outNelson Barbosa, who was until recently the executive secretary of the Ministry of Finance, spoke in Washington on 20 September at a seminar on the Brazilian economy organized by the Brazil Institute of the Woodrow Wilson

center. It was his first public statement since leaving the government.

Barbosa said that in the next few months the government will face the triple challenge of repressed inflation, the high cost of loans from state-owned banks, and the likely devaluation of the real due to an external account deficit.

Barbosa sees government stimuli as coming to an end, having evolved from less than 1 percent of GDP before the crisis of 2008 to 9 percent today.

prospects for foreign investmentNearly R$10 billion net (uS$4.59 billion) entered Brazil over 1–19 September. A total of about R$700 billion (uS$321 billion) has been invested in Brazil, mostly over the long term, with American banks citibank and JP Morgan jointly accounting for 75 percent.

Some 59 percent of foreign capital stems from the united States and 7 percent each for Luxembourg and the united Kingdom. German Finance Minister Wolfgang Schäuble has identified Brazil as a very attractive venue for German direct investment, despite oscillations in economic policies.

the recent exemption of fixed-income papers from the 6 percent tax on investment provoked a minor inflow of capital. If fixed-income papers are viewed in isolation, the distribution is as follows: 29 percent from the united States, 20 percent from Japan, and 15 percent from china.

investing in infrastructureBradesco on 18 September launched the first fund for investment in debt bonds earmarked for the financing of infrastructure. Since the enactment of Law 12,431 in 2011, investment in these papers has been exempted from

income tax, but no specific fund had been created for this purpose.

Similarly P2 Brasil, an enterprise resulting from an asso-ciation between investment bank Patria Investments and engineering firm Promon, is now engaged in the creation of a new private equity fund of at least uS$1 billion to invest in infrastructure.

raising moneyIf conditions remain unchanged in the international market for debt papers, Brazilian enterprises and financial institutions may raise uS$12–15 billion by the end of this year. this would represent a significant decline over the uS$27.8 billion for the first half of 2013, but that figure was strongly affected by a uS$11 billion bond issue by Petrobras.

renegotiating debtthe government will renegotiate R$23.84 billion (uS$10.94 billion) of the National Bank for Economic and Social Development (BNDES) debt to the treasury. Due to oscillations in the foreign exchange rate since 2009, the treasury has injected R$300 billion (uS$138 billion) into the bank, R$45 billion (uS$20.7 billion) of it in 2012.

shrinking fiscal surplusthe government’s original target for a fiscal surplus this year was 3.1 percent of GDP, but in May it had to lower that to 2.3 percent. Now the government says it is aiming at a surplus of “at least 2 percent.”

Bond issuesthe decision of the uS Federal Reserve in mid-September to maintain its monetary stimulus program immediately opened space for Brazilian companies and those of other emerging economies to raise capital.

Central Bank president Alexandre TombiniPh

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BNDES led the way on 19 September with an issue of uS$2.5 billion in senior bonds, divided in tranches due in 3 and 10 years. the issue is the first made by the bank in overseas markets since 2011. Demand went above uS$12 billion and exceeded expectations.

Other bond issues may be expected from Petrobras, the Bank of Brazil, and large private companies cSN, Klabin, Minerva, Marfrig, and JBS.

In a similar vein, caixa Econômica Federal (cEF) issued uS$1.25 billion in five-year bonds on 26 September. It had already issued bonds worth uS$1.5 billion and may yet return to the capital markets before the end of this year.

public banks get their instructionsBrazilian public banks were instructed by President Rous-seff on 26 September to curb their presence in the credit market and maintain a greater presence in the financial system. BNDES will henceforth reduce its loans to large corporate borrowers and focus on financing infrastruc-ture concessions. cEF will proceed likewise, and to some extent so will the Bank of Brazil.

a Brazilian bank in chinathe Bank of Brazil is about to open a branch in Shanghai, its first in china, where it has been operating since 2010 with a representative office. During the first eight months of this year, Brazilian exports to china increased more than 9 percent over the same period in 2012, reaching close to uS$32 billion, which makes it a very attractive market.

Brics bank advancesPending approval at the next BRIcS summit, to be held in March 2014, one of the proposals being considered for a BRIcS bank is that it will be permitted to finance projects outside the member countries (Brazil, Russia, India, china,

South Africa) and that it may co-finance them with other international institutions, such as the World Bank, provided that the executing agency or enterprise is linked to one of the BRIcS.

the bank will have initial capital of uS$50 billion, which Brazil proposes be equally divided among the BRIcS countries. Brazil, Russia, and India would also contribute uS$18 billion each to the reserve fund of uS$100 billion, china uS$41 billion, and South Africa uS$5billion.

swings and roundaboutsFrom January to August 2013, Brazil had a current account deficit of uS$50 billion, versus uS$54.2 billion for the entire year 2012. that represented a rise from 3.46 percent of GDP in July to 3.6 percent in August –

the highest in 11 years. the deficit in external accounts was maintained at uS$75 billion.

the trade balance surplus dropped 89.7 percent in rela-tion to 2012. the central Bank forecast uS$60 billion in inflows of foreign direct investment (FDI), $5 billion less than previously forecast. Portfolio investment, however, will rise from uS$82 billion to uS$130 billion.

Japanese investmentthe recent economic recovery in Japan has caused the resumption of Japanese investment in Brazil, after 20 years in the doldrums. From January through to August 2013, Japanese firms pumped uS$1.657 billion into, against uS$1.471 billion for the whole last year.

these investments have focused on the sectors of infra-structure and energy. Japan is now the sixth largest investor in Brazil, and Brazilian exports to Japan grew 8.2 percent during the first eight months of this year. Brazil hosts 455 enterprises of Japanese capital.

economy in briefDebating the state of the economyO Estado de São Paulo on 9 September published a debate between Andre Lases, HSBc’s chief economist for Latin America, and José Paulo Kupfer, the economics editor of the paper. the gist was that investment constitutes the greatest uncertainty for Brazil in 2014, when the economy can be expected to grow by 3.2 percent.

Japanese investment in Brazil is picking up

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Das auto productionGerman automotive manufacturer Mercedes confirmed on 1 October its interest in resuming car production in Brazil in 2015. It plans to build a new factory to produce GLA compact crossovers in the state of São Paulo. the vehicles are about to be launched in Europe. Likewise another German automotive manufacturer, Audi, part of the Volkswagen Group, will invest uS$500 million in a car factory in the state of Paraná.

soy soars According to the uS Department of Agriculture (uSDA), Brazil will be the world’s largest producer of soy in the 2013–14 harvest, thanks largely to a severe draught in the united States. uSDA estimates a rise in Brazil’s next soy harvest from 85 to 88 million tons, with value of nearly uS$82 billion.

Agribusiness is expected to account for half the increase in the Brazilian GDP in 2014, thanks mostly to soybeans. the total revenue of the agribusiness sector this year was R$1.038 trillion (uS$0.48 trillion), and that should rise by 5 percent with the next crop.

an agricultural frontierA new agricultural frontier has been created where Mato Grosso borders tocantins and Pará, and multinational enterprises are rushing to capitalize on it by cultivating corn and soybeans on what was formerly degraded pasture land. the logistics are still poor, since imports such as fertilizers must be channeled through the port of Paranaguá, Paraná, 2,100 km away.

auditing expansionAuditing firm Ernst & Young saw its revenues in Brazil grow 23 percent during the fiscal year ending in June, earning some R$1.1 billion (uS$0.5 billion). the firm has doubled over the last three years, and plans to double again over the next five.

sumitomo rollsJapanese conglomerate Sumitomo, already present in Brazil in the steel and mining sectors, is entering the rub-ber tire market. On 3 October, it formally launched opera-tions at a plant costing R$560 million (uS$257 million) in curitiba, Paraná.

looking northeastA seminar on regional development in Brazil sponsored by newspaper O Estado de São Paulo in São Paulo on 19 Sep-tember had several interesting conclusions. the northeast comprises nine states and has traditionally been a rela-tively backward region. In recent years it has contributed 13.5 percent of GDP, but its economic growth has been hampered by deficient logistics and energy infrastructure and a lack of qualified manpower. One of the most impor-tant bottlenecks to growth lies in the field of education.

Lack of capital is not a major problem. Investments of over uS$37 billion are foreseen over the next five years, mainly for projects in mining, cellulose, and wind-power.

energy & enVironment

libra tender news

National Petroleum, Natural Gas, and Biofuels Agency (ANP) director-general Magda chambriard estimated on 17 September that the Libra pre-salt deposit, to be auctioned on 21 October, may yield about R$900 billion (uS$413 billion) to government coffers over 30 years of exploitation, one-third of it in royalties and two-thirds in oil due to the federal union for its share in the block.

Addressing a Senate committee, chambriard stressed that the Libra field is so large that no single enterprise could operate it alone. Moreover, access is difficult because wells of up to 7,000 m will have to be drilled.

the government couldn’t hide its disappointment when most of the oil majors – Exxon, chevron, Statoil, BP, and BG – abstained from the tender. ANP had expected 40 enterprises to participate, but only 11 did so:

n Shelln GALP Energian Repsol-Sinopecn Petronasn Mitsuin Oil and Natural Gas corporation (ONGc)n totaln Ecopetroln chinese National Offshore Oil corporation (cNOOc) n chinese National Petroleum corporation (cNPc).

ANP estimates that R$400 billion (uS$184 billion) will be needed to develop Libra over its 35-year concession. the signature bonus was R$15 billion (uS$6.9 billion). …

Mercedes plans to produce GLAs in the state of São Paulo

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As Petrobras will have a minimum 30 percent share in the concession, this represents a capital outlay of about R$4.5 billion (uS$2.07 billion), and the government has announced that it may help the company to finance it.

Several factors influenced the decision of the majors to abstain: the hefty bonus fee, the dissuasive regulatory framework, and the availability of cheap oil elsewhere, thanks to the huge shale gas deposits in North America. Other factors are the necessary partnership with Petro-bras as operator, and the government’s potential interfer-ence through Pre-Sal Petrobras S.A. (PPSA).

oil & gas in briefchevron agrees to fineAlmost two years after the leak of 3,700 barrels of oil from the Frade field, in the campos basin, an agreement was signed on 13 September between the Office of the Federal Prosecutor and chevron, whereby the latter will pay R$95.1 million (uS$43.7 million) in environmental compensation.

Hrt comes up drySmall Brazilian oil company HRt reported on 10 Septem-ber that its third drilling operation in Namibia, Mooseh-ead-1 well, was found to be dry. Its previous two wells, Murumbe and Wingate, were also dry, the latter reported as non-commercial. Bank Itaú BBA has ranked HRt stock as underperforming.

ogX restructuredOGX, the oil and gas branch of Eike Batista’s EBX conglom-erate, is being restructured. It is reportedly negotiating with ExxonMobil to transfer its 50 percent share in block PDt-M-475, in the Potiguar basin offshore the extreme

northeast of Brazil. OGX won the concession in the 11th Round auction last May. Other partners may be involved.

Deloitte gets new centerDeloitte inaugurated its center of Excellence in Oil & Gas on 17 September in Rio de Janeiro. Speaking at the event, Adi Karev, the company’s leader for the oil and gas industry, asserted that the Brazilian government must reduce its influence on Petrobras if it wishes to attract private investment.

With an initial investment of uS$1 million, the center of Excellence will bring together about 120 specialists in different aspects of the petroleum industry.

chinese share of galpPortuguese oil company GALP Energia is, after Petrobras, the holder of the largest number of assets in the Santos basin. Since 2011, it has had a partnership with chinese company Sinopec, which now plans to invest billions in GALP projects in Brazil and elsewhere. Sinopec paid uS$5.2 billion in 2011 for a 30 percent share in Petrogal Brasil, a subsidiary of GALP.

shell shareShell announced on 19 September that it had exercised its right to acquire the 23 percent Petrobras share in block Bc-10, in the campos basin, thus raising its share to 73 percent. Shell is the operator of the block and Petrobras retains 12 percent. Indian Oil and Natural Gas corporation (ONGc) owns the remaining 15 percent.

supply vessels contractBrazil Supply will invest R$600 million (uS$275 million) in the construction of 17 supply vessels for Petrobras, through to 2015. Destined mostly for pre-salt exploitation, the vessels will be built by shipyards from Rio and São

Paulo, with a minimum local content of 62 percent. the Merchant Marine Fund (FMM) will supply 80 percent of the financing.

BnDes ponies up in oil and gasthe National Bank for Economic and Social Development (BNDES) plans to invest uS$405 billion in Brazil’s oil and gas sector over 2013–16, a 48 percent increase over the previous four years (uS$276 billion).

gas research centerA center for Research for Innovation in gas has been set up in São Paulo thanks to an agreement between the Foundation to Support Research of the State of São Paulo (FAPESP), three British institutions (the Imperial college, the university of Manchester, and the British council), and BG Brasil.

the announcement was made in London on 25 Septem-ber by FAPESP president celso Lafer, who emphasized the role of the center in contributing to energy security based on natural gas.

swire serious about Brazilthe Anglo-Dutch Swire Group has announced plans to substantially increase its investment in the Brazilian oil and gas sector through to 2016, as part of an overall business plan for 2011–16. to that end, subsidiaries Swire Pacific Off-shore and Swire Oilfield Services will become active in the country: the former constructing support vessels for off-shore, and the latter leasing containers, baskets, and stor-age tanks for the transport of oil and gas in the high seas.

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Bio-fuels in briefstoring ethanolthanks to R$500 million (uS$230 million) in financing from the National Bank for Economic and Social Develop-ment (BNDES), approved on 6 September, copersucar, Brazil’s largest trading company for sugar and ethanol, will invest in the storage of ethanol fuel. the transaction was of an indirect nature, carried out by banks Itaú BBA, Santander Brazil, Bradesco, and Safra.

cutting aviation pollutionBoeing and Embraer have been exchanging information since 2011 on aviation fuels designed to reduce pollut-ing gases. Airbus joined the network in 2012, which now comprises 30 participants: airlines and aircraft manufac-turers and their respective suppliers.

cellulosic ethanol enters the pictureBrazil will have at least three plants to produce cellulosic ethanol by 2015. this technology was until recently viewed as a very long term, but two enterprises, Grand Bio and Larzen, are investing about uS$800 million for their plants to enter operations between 2014 and 2015.

Another project is that of Petrobras Biocombustivel, and yet another belongs to Odebrecht Biocombustivel (for-merly EtH Bioenergia), which plans to come on stream in 2015. In the aggregate, the five projects will receive investment of R$1.2 billion (uS$0.55 billion) from BNDES.

rethinking the corn issueBrazil has for a long time extolled the virtues of sugarcane-based ethanol over that produced from corn, as in the united States. Now, record corn crops from Mato Grosso are leading several Brazilian investors to re-think the issue. …

petrobras news DomesticIn an interview published in Valor Econômico on 25 September, Petrobras president Maria Graça Foster spoke about various issues.

She noted that a tender will be held in March or April 2014 for the construction of Premium Refineries 1 (Maranhão) and 2 (Pará). As for the Abreu & Lima refinery (Pernambuco), she said, Venezuelan company PDVSA could still be a part of the project if it paid 40 percent of the costs in cash (uS$17 billion, seven times the original budget).

Graça Foster indicated that company oil production this year will be close to last year’s 2.124 million b/d, plus or minus 2 percent. In 2014, however, there will be a big jump forward in output as nine new drilling platforms come on stream.

the exchange rate variation has been harmful to the company, she said, as its budget is based on a uS dollar worth R$2. Petrobras is discussing the realignment of domestic to international fuel prices with the govern-ment, so that the company can continue to carry out its investment plan (uS$45 billion in 2012).

international

pDVsa out of the pictureDespite Maria Graça Foster’s remarks in September, Petrobras has officially renounced its partnership with PDVSA for the construction of the Abreu & Lima refin-ery at Sinape, Pernambuco, launched in December

2007 by former president Lula da Silva. With balloon-ing costs and four years behind schedule, the refinery has to be adapted to the absence of its Venezuela partner, and on 1 November will become just another business unit of Petrobras.

selling up in colombiaPetrobras announced on 13 September that it had sold 100 percent of its shares in Petrobras colombia to oil company Parenco, for uS$380 million. Eleven blocks were included in the sale. In 1972, colombia was the first country for international operations for Petrobras, and the proceeds of this sale will be earmarked for pre-salt E&P.

no more divestmentPetrobras has practically closed its divestment program of domestic assets, included in its business plan for 2013–17. the divestment was valued at uS$9.9 billion, about 50 percent of which has been reached. the refin-eries at Pasadena, texas, and Okinawa, Japan, have been withdrawn from the sales program.

Petrobras president Maria Graça Foster

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Friagril, a soybean crusher from Lucas do Rio Verde, expects to invest uS$100 million to produce ethanol from corn as of 2015 (up to 200 million liters). Other plants that currently make ethanol from sugarcane are adjusting their industrial processes to shift to corn.

electricity sectormpX shiftMPX Energia, the energy branch of the EBX conglomerate, has been acquired by German group E.ON, replacing Eike Batista as the major shareholder. the company name has now been changed to ENEVA.

solar and wind power auctionedthe Enterprise for Energy Research (EPE) will hold its next A-3 auction, for delivery of electricity within three years, on 18 November. It will be the first of its kind to include solar energy projects: 109 photovoltaic projects, produc-ing a total 2,729 MW; and 3 thermosolar projects, yielding

299 MW. Some 784 projects have been listed for this auction, the majority for wind power (15,042 MW).

Back to Brazil for eDfEDF, the giant French holding company in the power sec-tor, divested its Brazilian company Light in 2006 in order to focus on European operations. It now wishes to return to Brazil, and plans to invest in the hydropower plants of Sinop (400 MW, in partnership with Eletrobras), Manoel (700 MW), and São Luiz do tapajós (6,200 MW).

piauí to get wind powerPiauí is a poor state in the Brazilian northeast that, unlike its neighbors ceará and Rio Grande do Norte, does not yet have wind-power installations. this will soon change, as American firm contour Global plans to invest R$780 million (uS$358 million) in the state for an Aeolian generating facility with a 210 MW capacity.

solar panel production Brazil Solar is a new Brazilian enterprise that will manu-facturer solar panels in the northeastern state of Paraíba. this will be the second such plant in Brazil, after one owned by techmetal that is already producing. Brazil Solar will produce up to 300,000 panels, with an aggre-gate generating capacity of 60 MW.

thermonuclear plant tender readyOn 25 September, the Federal court of Accounts (tcu) approved the tender announcement for construction of the Angra 3 thermonuclear plant with slight changes. the plant will have a generating capacity of 1,405 MW and the cost for building it is estimated at R$14 billion (uS$6.4 billion).

two consortia are registered to bid for the contract: uNA 3, formed by leading contractors Norberto

Odebrecht, Andrade Gutierrez, camargo corrêa, and utc Engenharia; and Angra 3, consisting of Queiroz Galvão, Empresa Brasileira de Engenharia, and techint.

science & technologyr&D fundsthe Ministry of Science, technology, and Innovation announced on 19 September that R$14 million (uS$6.4 million) will be available for research, development, and innovation in Brazil. And the figure may double thanks to private investment. Eligible for the grants are institutes for science and technology and enterprises that maintain research centers in Brazil.

it center expansionGerman It firm SAP announced on 18 September the expansion of its research center in São Leopoldo, Rio Grande do Sol, representing an investment of R$600 million (uS$275 million). the expansion will permit the center to employ 1,000 researchers.

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Oil, Gas & Biofuels …

Brazil Solar will manufacturer solar panels in the state of Paraíba

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politics, law, society

politics in briefrousseff on the rise againthe government’s More Physicians program, whereby for-eign doctors are imported to Brazil and assigned to work in peripheral areas, is the principal factor behind President Dilma Rousseff’s renewed rise in popularity, according to a cNt/MDA poll on 11 September. Some 58 percent of those interviewed approved Rousseff’s performance (against 49.3 percent in July). As for voter intentions, 36.4 percent opted for Rousseff (against 33.4 percent in July).

An IBOPE/Estadão poll released on 26 September showed the same trend. Rousseff’s share of voter inten-tions rose 8 points since July, to reach 38 percent. She took some support from Marina Silva, who is trying to create a new political party (Rede) and now has 18 per-cent of voters’ support.

Aécio Neves of the Brazilian Social Democracy Party (PSDB) stands at 11 percent, and Eduardo campos of the Brazilian Socialist Party (PSB) at 4 percent.

lula for rousseffStatements by former president Lula da Silva indicate that he intends to take an active role in support of President Rousseff’s electoral campaign in 2014, cross-crossing the country on her behalf. As for the rift between Eduardo campos and the Workers’ Party (Pt), Lula believes this was the result of an error on both sides.

psB hands back portfoliosIn a cordial but objective conversation with President Rousseff on 18 September, the Governor Eduardo

campos of Pernambuco, president of the Brazilian Social-ist Party (PSB), returned to the government the two ministerial portfolios held by the party, namely National Integration and the Secretariat of Ports. Several state enterprises were likewise returned.

Authorized by the party steering committee after more than four hours of debate, campos’s gesture makes his candidacy for president in 2014 almost inevitable, in opposition to Rousseff. It is likely that the National Inte-gration portfolio will now be awarded to the Brazilian Democratic Movement Party (PMDB).

cleaning house at psB Eduardo campos is removing dissidents from the Brazil-ian Socialist Party (PSB) in order to have a clean slate on which to run for the presidency in 2014. thus on 25 September, Governor cid Gomes of ceará and his brother ciro, both committed to supporting Dilma Rousseff’s re-election, were struck from its rolls. Other politicians were also invited to leave PSB, while still others are joining it.

party, party, partythe Superior Electoral court (tSE) approved on 24 September the creation of two new political parties: the Republican Party of the Social Order (PROS) and Solidarity (SDD), which may thus compete in the 2014 elections. the deadline for registration was 5 October. these new parties, which bring the total number to 32, hope to attract 50 federal deputies.

PROS will side with Rousseff and SDD with either Aécio Neves or Eduardo campos. Vice-President Michel temer, who is licensed as president of the Brazilian Democratic Movement Party (PMDB), commented that Brazil has too many parties, and that this “excessive number” is not good for the country.

legal issuesfollow the moneythe Federal Police now have more work investigating corruption with public money than with drugs traffic or smuggling. From January to August 2013, the two areas represented 20.7 percent and 16.9 percent of their work, respectively. Some R$1 billion (uS$0.46 billion) in illegal transactions are under investigation.

a new attorney-generalthe Senate on 11 September approved the nomination of Rodrigo Janot for Attorney-General (Procurador Geral da Republica) by 60 votes to 4. He will thus be able to inter-vene in the last stages of the trial of pending appeals from the mensalão case before the Supreme court.

the new Attorney-General commented on the many occasions when legal and environmental obstacles have prevented public works, sometimes representing huge investments, from proceeding or being completed due to objections from the local office of the Public Prosecutor or environmental organizations. He pledged to resolve these issues by applying the legislation in force.

In general, Janot presented a conciliatory posture vis-à-vis the government.

mensalão appeals to proceedOn 18 September, the Supreme Federal court (StF) voted 6 to 5 on the admissibility of further appeals (embargos infrigentes) for 12 of the 25 convicted in crimi-nal Suit nr.470 (the mensalão case). the opinion was ren-dered by Mr. Justice celso de Mello.

the appeals were allowed, and a new trial by StF will take place in 2014, on questions of law only. the rapporteur …

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will be Mr. Justice Luis Fux, chosen by lot, and he has promised that he will expedite the trial.

Public opinion and the media were disappointed with the court’s decision to have a new trial. Also to be considered is the domino effect of the decision, which will affect 306 other criminal lawsuits now pending before the Supreme court, including those relating to prominent politicians.

Defense issuesarmed forces to get new rifles Industria de Material Bélico do Brasil (IMBEL) is a firm linked to the Ministry of Defense. As of 2014, it plans to produce 10,000 IA2 assault rifles for delivery to the Armed Forces, at a cost of approximately R$55 million (uS$25 million). the new standard weapon will replace the FAL rifle, used by close to 100 countries worldwide. the IA2 family of rifles has several variants and supports a wide range of equipment and accessories.

But money is tightthe Brazilian Army will require R$58.2 billion (uS$26.7 billion) by 2010, but at the current rate of progressive budget cuts it will have difficulty securing sufficient

appropriations even for Sisifron, the border monitoring and surveillance system, which alone will cost almost R$12 billion (uS$5.5 billion).

In fact, appropriations for this year were just R$709.1 million (uS$325.6 million), plus an undisclosed amount for the guaranteed purchase of armored vehicles, budgeted at R$9.5 billion (uS$4.4 billion) over several years. the vehicles are being produced by Fiat/Ivea.

selling artillery to indonesia Brazilian aerospace company Avibrás, based in São José dos campos, São Paulo, announced on 25 September that it had signed a contract for R$900 million (uS$413 mil-lion) with Indonesia to supply its Astros II artillery satura-tion rocket system, mounted on 36 armored vehicles. the company had previously contracted with Malaysia to sup-ply similar weapons for R$500 million (uS$230 million).

social issuesrousseff signs royalty billOn 9 September, President Dilma Rousseff signed into law the bill that allocates 75 percent of oil and gas royalties to education and 25 percent to health. the

government foresees estimates that the earmarked funds could total $49 billion over the next decade.

Brazil currently invests about 5.3 percent of GDP on edu-cation. Average spending on education by the 34 member countries of the Organisation of Economic co-operation and Development (OEcD) is 5.4 percent of GDP.

Quality of life indicatorsInfant mortality in Brazil has dropped 77 percent in 22 years, from 62 to 14 deaths per 1,000. Nevertheless, according to uNIcEF, the mortality rate of children under five is still 19.6 percent in the northeastern region.

the rate of illiteracy has stopped its downward trend, however, and stands now at 8.7 percent, 300,000 more than in 2011. Sanitation is another problem: 42.9 percent of Brazilian homes have no sewage treatment.

income and employmentunemployment continued its downward trend in August, reaching 5.3 percent, its lowest level in eight months. the average over January–August was 5.7 percent. the worker income average rose 1.7 percent in August, to R$1,883 (uS$865), helped by slowing down of inflation.

the income gap, however, has stopped narrowing. the average monthly income of the 10 percent poorest layers of the population is R$215 (uS$99), a 6.4 percent increase, while the 1 percent wealthiest averaged R$18,889 (uS$8,682), a rise of 10.8 percent. Great regional discrepancies also continue.

The IMBEL IA2 assault rifle will replace the aging FN FAL shown here

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international affairs

Diplomatic briefsespionage saga continuesPresident Dilma Rousseff said on 9 September that espionage of Petrobras conducted by the uS National Security Agency (NSA) had exposed the uS govern-ment’s strategic and economic motivations, and was as serious as the interception by NSA of her own mail and communications.

When she met Barack Obama at the G-20 summit in St. Petersburg, she alerted the American president that she would raise the subject, calling for international gover-nance of cyber-communications, in her opening speech to the uN General Assembly later than month.

Brazilian Foreign Minister Luiz Alberto Figueiredo also traveled to Washington on 9 September to meet National Security Advisor Susan Rice.

Meanwhile, the Brazilian Senate has constituted a Parliamentary committee of Inquiry (cPI) that wishes to travel to Russia to take a deposition from Edgar Snowden, if it is diplomatically possible. In Brazil, Minister of Justice José Eduardo cardozo said on 10 September that the gov-ernment is studying means of offering security protection to journalist Glenn Greenwald and his companion, David Miranda.

the syrian positionSpeaking on 8 September in Geneva, Minister of Foreign Affairs Luiz Alberto Figueiredo Machado reiterated Brazil’s position that an armed attack against the Syrian region could take place only with the authorization of

the uN Security council, on the basis of the report of inspectors sent there to determine whether chemical weapons had been used. A Brazilian commission is being organized to help withdraw Brazilian citizens from Syria.

international trade in briefazevêdo’s inaugural speech Brazilian diplomat Roberto Azevêdo, the new director-general of the World trade Organization (WtO), gave his inaugural speech to its 150 members in Geneva on 9 September. Brazilian Foreign Minister Luiz Alberto Figueiredo Machado was in attendance at the session and delivered a message from President Dilma Rousseff expressing Brazil’s support for the multilateral trading system and for the new director-general.

the gist of Azevêdo’s speech was that there is no alterna-tive to multilateralism and that there will be an opportu-nity to unblock negotiations for the multilateralization of international trade at the WtO ministerial conference in Bali, Indonesia, in December.

the world will not wait for WtO to solve its impasse on trade in agricultural goods, Azevêdo said, and its failure to act would deprive the global economy of the benefits of up to uS$1 trillion in trade.

Azevêdo has 10 weeks in which to prepare for the Bali meeting, and less than one month after taking office he already has taken measures to reshape WtO into a more agile and effective organization. the shock treatment is designed to compel governments to make political decisions regarding the Bali agenda. the future of WtO hinges on the results of the meeting.

argentinean protectionism continuesBrazilian Foreign Minister Luiz Alberto Figueiredo Mach-ado traveled to Buenos Aires on 19 September to meet his counterpart Héctor timerman, with whom he discussed bilateral trade relations and the elimination of Argentina’s restrictions against Brazilian exports.

Bilateral trade between the two countries was uS$34.5 billion in 2012, but Argentina has enacted a series of protectionist measures that have frustrated and angered the Brazilian government and exporters, and there is no end in sight for them.

support for Brazilian enterprises abroadthe Brazilian Agency for Export and Investment Promotion (APEX), has 10 branches that provide support to Brazilian enterprises in Angola, Belgium, china, colombia, cuba, Dubai, Russia, and the united States. In addition to its existing uS office, it has now opened a second one in San Francisco, in order to facilitate contacts between Brazilian It enterprises and those located in Silicon Valley.

Roberto Azevêdo, the new director-general of the WTO

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uneclac reportthe uN Economic commission for Latin America and the caribbean (uNEcLAc), based in Santiago, chile, has issued its annual report. In it, Brazilian exports were fore-cast to remain stable in 2013, whereas imports are likely to rise. Specifically, exports are expected to decline 0.1 per-cent, more or less the same value as in 2012 – uS$242.6 billion. this represents an improvement relative to 2011, when exports dropped by 5.3 percent. Imports are expected to rise 4.6 percent.

trade balance with us declinesBrazil’s trade balance vis-à-vis the united States is fast deteriorating. It is already uS$6.8 billion in the negative, 21 percent more from January to August than during all of 2012. Although Brazilian sales of orange juice have increased (331 percent), as have some petroleum byproducts, exports of most semi-manufactured

products have been declining: iron and steel, automotive parts, compressor engines, electric power generators, and other traditional exports.

chinese competitionchina has been encroaching on Brazil’s principal export markets for manufactured goods (Mercosur, ALADI, and NAFtA), as chinese exporters avail themselves of market opportunities, according to a recent study released by Institute for Studies on Industrial Development (IEDI). While the value of Brazilian and chinese exports to these markets were relatively similar in 2008, china sales have now doubled.

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VistaBrazil 10.13Brazil’s trade balance vis-à-vis the United States is fast deteriorating

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