Supplementary memorandum submitted by
UK COMPANIES WORKING
There are some UK companies amongst the leading
players in Brazil. BT Global Services opened up in the last few
years to offer corporate communications outsourcing. LogicaCMG,
a supplier of turnkey communications solutions for operators,
has a turnover of 35m pounds in Latin America, (25% in Brazil). National
Grid has a 50% share of a long-distance/corporate services telecoms
operators, Intelig. Software and content providers Intec and OneWorld
Interactive have set up in Brazil and others have been pulled
in by existing customers. Vodafone does not operate in Brazil
and the telecoms sector is dominated by the latin players, TIM,
Telefonica, Portugal Telecom and Telmex.
The mission by telecoms content providers in
October has identified good potential for innovative UK companies
to deliver services to the operators. It is still too early
to quantify the result of this mission but all participants identified
opportunities for significant business and will be following up
in the market over the coming months.
Recent activity and outcomes for the ICT sector:
4 UK companies attended the UKTI sponsored mission
to Futurecomm in October 2006. All 4 companies are expected to
do business with Brazilian companies within 12 months
The Law Society and OAB signed a friendship
agreement and launched a 2 way young lawyers exchange programme
(6 months duration each round). The first round of the programme
with Brazilian lawyers in the UK has ended this year with a very
Linklaters was chosen by the Brazilian government
(BNDES + Planning Ministry) to provide legal assistance on the
first federal PPP pilot projects.
KPMG was contracted by the Minas Gerais State
government to assist on the modelling of the first PPP project.
PWC is advising the Sao Paulo and the Bahia
State governments on their PPP projects.
The Brazilian Development Bank (BNDES), jointly
with the Planning Ministry, have expressed formal interest to
have Partnerships UK on board as a PPP consultant for the federal
pilot PPP projects, after the end of a successful 3 month "help
desk" service sponsored by the British Embassy and the Global
Opportunities Fund (GOF). (Negotiations under way).
5 Brazilian delegates in London from 13-21 November
to attend a 2 week PPP training programme promoted by Partnerships
UK in London, fully funded by their institutions. A total of £15,000.00
in course fees. This is the second year a Brazilian delegation
is attending the course and there is interest from the Brazilian
authorities to continue sending delegates.
Recent activity and outcomes in Financial Services
3 Brazilian delegates attended a PPP seminar
in London in May. Side visiting programme arranged and useful
relationship building process. Sao Paulo state and the Planning
Ministry started negotiations with Partnerships UK to have them
as an advisor for their PPP programmes.
UKTI commercial staff at Post keep close contact
with federal and state officials as well as the market in order
to raise the profile of UK companies that provide PPP related
services. UK companies present in the market (KPMG, PWC, Linklaters)
have been successful in obtaining contracts. Our work, contact
building, projects and presence in events/meetings has directly
or indirectly contributed to securing contracts.
Since the Kyoto Protocol was signed in 2005,
there has been an increasing interest, by companies and potential
investors, in designing projects aimed at the reduction of greenhouse
gas emissions. Based on the market potential, the Climate Change
Projects Office (CCPO) sponsored a seminar mission to São
Paulo, bringing 13 British companies from carbon funds and brokerage
to project management and validation.
CO2e (UK company and global leader in carbon
trading) is very active in the market with overall responsibilities
for all phases of a project life cycle, such as: designing, advising
and trading carbon credits. CO2. Com has recently opened an office
in Brazil. Climate Change Capital has a local partner in São
Paulo. European Carbon Funds has purchased 2.7m tons of carbon
credits from Sadia's project and a few other companies have visited
the market by themselves to develop opportunities.
There are more than 10 ongoing projects in Brazil
and a total of 1.5 million carbon credits from those projects
have been traded, generating more than 15m Euro.
(Brazil)The Federal Government presented
a bill to Congress in May 2005 in order to establish a regulatory
framework to allow the sector to develop over the next few years.
Congress has exhaustively been discussing its legal aspects and
proposed many amendments. One of the major concerns is that does
not give a clear definition for the state and municipal government's
Although it is important to note that the top
five state sanitation companies: Sabesp (São Paulo), Copasa
(Minas Gerais), Saneago (Goias) and Embasa (Bahia) are moving
ahead with their investment programmes. And on a small scale,
the private concessionaires are also running investment programmes.
The lack of a regulatory framework and consequently
the lack of investment in the sanitation sector made UK companies
like Thames Water, Anglian Water and Biwater leave the market
3 years ago. However, Permastore, a UK manufacturer of water tanks
is supplying Parana State Water company; while Palmer Environmental's
leak detection and pressure control equipment are present in the
market via local distributors. Centrequip are established in the
market, supplying decanters and centrifuges. Hydra-Ject (high-pressure
water jet cutting systems) have generated deep interest from the
state water companies and are considering entering the market.
(Argentina)British companies have
had a small role in operating services, larger on the consultancy
side, and small in equipment.
In 1993 the national water corporation Obras
Sanitarias de la Nacion was privatised. A 30-year operation
concession was awarded to Aguas Argentinas. Main shareholders
in Aguas Arentinas are a large French group: Suez. Anglian Water
held a small 4.2% equity. As a result of the 2001-02 economic
crisis water tariffs have been frozen causing financial problems
and uncertainty. After a long series of negotiations and crossed
threats the government rescinded the contract with Aguas Argentinas
and took over the operation by way of a state company, AGUAS
Y SANEAMIENTOS ARGENTINOS SA. Before this occurred Anglian
were already trying to sell out. Aguas Argentinas continues
to exist, but mainly in legal terms as it is suing the government
for the unilateral ending of the concession.
Consultancy has been more steady and probably
more profitable. Halcrow prepared the tender documents for the
privatisation of Obras Sanitarias in 1992 and assisted
the government in the bid. They also played a similar role in
several smaller provincial privatisations, prepared a master plan
for the Salado River catchment area for the Buenos Aires Province
(a major consultancy project funded by the World Bank), and throughout
the 1990s gave services to the new privatised water companies.
More recently Halcrow were awarded an exciting contract to proposed
solutions for the rain flooding problems in Buenos Aries and design
a large drainage system which includes 7 kilometres of large tunnels
in the most central part of the city. Severn Trent have done some
consultancy work for Aguas Argentinas. On the equipment
side main role has been of Weir Pumps supplying equipment to Aguas
Argentinas in the early stage of the concession.
This potential of the market is, at least in
part, due to an increase in private sector investment, as there
is a lack of investments by the federal government. Therefore,
the UKTI Environment Industries Sector Unit (EISU) has been promoting
the UK's strengths in the areas of contaminated land remediation,
air pollution control and waste management by bringing seminar
missions to the market. We had 4 companies in April and another
seminar mission is due to take place in March next year.
Atkins is discussing a business contract terms
with a local partner to start working in projects driven by the
private sector. Other companies like MGS and Orchid made their
independent research and appointed local partners.
Recent activity and outcomes in the Environment
MoUDuring a UKTI sponsored seminar and
mission to São Paulo in April 2006, CETESB (The State Secretariat
for the Environment of the State of Sao Paulo) proposed to UKTI
the possibility of establishing a MOU between CETESB and UKTI.
The idea is to establish a G2G forum in the areas of environmental
policy, regulation development and knowledge sharing. The establishment
of this agreement will offer to the UK a great opportunity to
influence the development of environmental policies and regulation,
thus allowing UK environmental companies better opportunities
to win business in Brazil. Latest: Draft MOU and Terms of Reference
have been approved by UKTI and DTI legal advisers and are now
with Post who will discuss with CETESB a date for signing the
Sales LeadSGW Services, based in São
Paulo, approached Post in Dec'05 looking for UK solutions concerning
a lead contamination case, including pollution to soil and groundwater.
UK company Atkins responded and, with UKTI advice and assistance,
has visited Brazil twice in 2006 to discuss the proposal further,
resulting in a potential partnership with SGW.
As a result of visiting the market as part of
a UKTI supported mission in 2003, UK company Permastore has established
a presence in Brazil and has been selling water tanks to SANEPARone
of the top 5 Water Companies in Brazil.
Oil & Gas
Brazil is the largest energy market and has
the second largest oil reserves in South America. Its deep water
Exploration and Production (E&P) area is considered a significant
potential for the UK's industry capability. The country is a Priority
A Market for UKTI oil & gas trade development activity as
agreed with the industry/government International Oil & Gas
Business Advisory Board.
Petrobras' planned investment for the 2007-2011
period will total US$ 87.1 billion, averaging US$ 17.4 billion
per year of which 47% will be for E&P. There will also be
substantial investment in the downstream area with more than US$
8 billion being target for a large revamp programme for all the
existing refineries and 2 new plants being considered. Another
US$ 4.5 billion will be invested to expand the pipeline network
for natural gas. The Brazilian oil and gas sector offers relevant
opportunities for UK products and expertise in all segments of
Upstream and Downstream businesses.
Around 50 British SMEs providing services and
supplies to the Oil & Gas industry are present in Brazil,
either directly or through agents. Majors such as Shell, BP, BG
Group and Wood Group are involved in the E&P and distribution
markets. Rolls Royce has a large maritime and energy operation
headquartered in Rio and is the leading provider of design and
equipment for large offshore supply vessels, with 80% of the market
in Brazil. Wellstream is investing US$ 60 million to build the
first phase of a flexible pipeline manufacturing plant (their
second plant outside the UK).
Although it is clear that Brazil is blooming
with good, relevant opportunities for UK companies and their expertise,
it is not an easy market to break into. UKTI plays an important
role in supporting UK companies interested in the Brazilian Oil
& Gas sector. It can provide market studies for specific products
or services, based on local knowledge as well as introduce companies
to relevant contacts.
The largest independent manufacturer of coatings
in the UK, Leigh's Paints came on a UK Trade & Investment
trade mission to Rio Oil & Gas 2006. Known in the market for
its large experience in the Onshore and Offshore Industry, the
company manufactures a comprehensive range of protective coatings,
passive fire protection and epoxy thermal insulation. Since 2004,
it has been working with the support of a local distributor, Morganite
Brasil (a subsidiary of the British Thermal Ceramics). Leigh's
Paints Fire Protection Consultant David Sugden mentioned that
its principal interest in Brazil is in fire protection of steelwork
for both the petrochemical market and the civil structural market.
Taking advantage of the UKTI Oil & Gas trade mission, David
Sugden visited Petroqu[doti][acute]mica União (a large
petrochemical plant) and signed a contract for structural steel
protection worth approximately £ 40,000. This success encouraged
Leigh's Paints to put more emphasis on further local market opportunities.
At the moment, the company is bidding for P53 and PRA1 platforms
Dr. Dev Sebastian from Sunrise Systems Ltd was
introduced to the Energy Team Manager in Brazil at the Americas
Oil & Gas Opportunities Road Show, held earlier this year.
One month after the event, Dr. Sebastian contacted the UKTI team
in Brazil and requested its support to approach a company called
STEI (Servi[lcced]os Te[acute]cnicos de Engenharia e Informa[acute]tica),
seen by Sunrise Systems as a potential agent in Brazil. UKTI visited
STEI office on behalf of Sunrise and met the Commercial Director
Paulo Henrique Elias. STEI is indeed well established in Brazil,
supplying Petrobras and other major players in the Oil & Gas
industry with engineering software from an American company. STEI's
perception, and the reason for their initial resistance to Sunrise
Systems approach, was that the products were competitors. During
the meeting, however, it became clear that Sunrise System's product
was in fact complementary to the one commercialised by STEI. UKTI
helped bring these two companies together to discuss initial strategies
in the Brazilian market. At the moment, the companies are in the
final stage of negotiating an agreement.
"I have always thought of Brazil as an
important market for us. This is because I believe the offshore
technology used in Brazil is similar to the North Sea, and the
conditions are similar as well. Thank you very much indeed for
your help in this. This probably could not have been achieved
without UKTI help. Sometimes, if someone from the UK contacts
an overseas company without an introduction, they may not always
be sure who that is. Or might even think that our products are
competitive rather that complementary. I have been to Brazil,
and I think it is a wonderful country and sets an example to the
world in many ways. However, as you know, one needs to be street-wise
in order to succeed in Brazil. That is why your introduction was
invaluable to us. Thank you." Dr. Dev Sebastian
UK-Brazil Energy MOU
UKT&I, in cooperation with Brazilian interlocutors,
industry and other government departments including FCO, DTI and
DEFRA have developed a UK/Brazil Energy MOU, signed in February
2006, in response to internal views and those of key companies
with an interest in Brazil including Shell, BG Group, BP and HSBC.
We and they saw a clear need for a Government-to-Government instrument
to help address barriers to further development of their (and
other companies) businesses in Brazil and the MOU has been put
in place to provide a mechanism to engage the Brazilians and encourage
them towards market-friendly policies in areas of concern to UK
plc such as Brazil's tax system, regulation, bureaucracy (e.g.
immigration) and on market conditions such as inadequate infrastructure,
Petrobras' monopoly power in many areas, weak regulation and suspicions
of or actual corruption. Equally, the MOU contains elements of
key interest to the Brazilians such joint research/renewables.
Objectives of the MOU include:
Facilitate commercial exchanges and
technology transfer in both directions, to the benefit of both
Provides for regular discussions
on a broad range of energy-related issues (trade, regulation,
energy security etc);
Will enable both sides to address
issues of mutual importance, including any possible barriers to
trade and investment;
Considered important by companies
active in the sectorprovides government with a framework
for tackling company concerns;
Encourages greater collaboration
on both traditional and alternative energy programmes, thus helping
to address issues related to sustainability and climate change.
Recent activity linked to the MOU includes:
UK Trade & Investment funded Education &
Training mission to the UK by Brazilian organisations such as
Transpetro, FIRJAN/SENAI in August 2006.
UK support for and participation in WIRE conference
on Strengthened Cooperation on Climate Change, Clean Energy and
Sustainable Development as part of post-Gleneagles G8 follow-up.
Brazil has the largest healthcare market in
the region. As such, it has become one of the main focuses for
investment in emerging countries, along with China and India.
Since the early 1990s Brazil has been through
a huge development process supported by the opening up of the
economy and financial stabilisation. This has also affected the
healthcare sector, which is gradually becoming more efficient
and professional. Demand for healthcare services has grown consistently
over the past years, due mainly to an increase in the purchasing
power of the population.
The healthcare sector in Brazil is composed
of public and private services with more than 7,000 hospitals,
723 specialised hospitals, more than 7,000 diagnostic clinics
and 328,000 doctors. It generates a yearly turnover of US$33,000
million (public 55%; private 45%). The hospital services segment
alone is responsible for US$5,000 million sales every year and
the public investment in the sector is US$20,000 million, according
to the Ministry of Health. Brazil is going through major health
reforms, including a comprehensive management modernisation process,
in both the private and public sectors, which offer substantial
business opportunities for UK suppliers of products and services
in this area.
Recent successes Healthcare Sector:
Bio Products Laboratory (BPL)/Memorandum of Understanding
Bio Products Laboratory (BPL) is UK's national
plasma fractionation unit, part of the NHS Blood and Transplant
(NHSBT), an organisation of the UK Department of Health. BPL has
supplied the Brazilian Ministry of Health with plasma derived
products for the last ten years and has been awarded significant
contracts through tenders in the past few years.
Brazil has a project to build its first Plasma
Fractionation Plant. The price for the overall project is between
US$150 and US$250 million for the next five years. The first tender
will be for counter-fractionation and the tender should be issued
shortly. BPL wishes to be considered for the supply of a manufacturing
contract and the provision of the Technology Transfer needed to
build a plant in Brazil, in a project that could last between
three to five years.
A Memorandum of Understanding on Healthcare
was signed during President Lula's visit to the UK in March 2006.
The MOU was prepared at the request of the Brazilian Government
to facilitate the collaboration of Bio Products Laboratory (BPL)
with Brazil's Ministry of Health. The main objective of the MOU
is to increase co-operation in the areas of blood plasma products.
BPL/NHSBT are coming to Brasilia in December
to discuss tender issues. Also, for a Government to Government
meeting to discuss the healthcare MOU.
Lancashire Ambulances/Berkeley Equipamentos Me[acute]dicos
In June 2005, Lancashire Ambulances and Berkeley
approached the City of Macae[acute], responsible for over 80%
of the oil production in Brazil, presenting a proposal for training
their health professionals and staff working on offshore platforms.
A visit to the UK led to the signing of a contract with Macae[acute]
to establish Latin America's first Medical Training Centre, aimed
at the Oil & Gas Industry. As a result of this visit an Inward
Mission was organised at the beginning of this year for the Secretary
of Health for Macae[acute] and officials from Petrobra[acute]s,
the Brazilian state oil company, to observe the systems and development
of telemedicine in Aberdeen. Technical negotiations are currently
ongoing and it is hoped that a second contract award will be announced
by the end of this year. Total value of the contract is estimated
Proxima Concepts Ltd
In September 2005, UKTI organised its first
Biotechnology Scoping Mission to Brazil. Their aim was to learn
more about the Brazilian Biotechnology sector and identify synergies
between the UK and the Brazilian industries. Dr Roger New, Director
of Proxima Concepts Ltd, was one of the three scientists invited
to take part in the Mission. He was interested in finding a Brazilian
company to collaborate with him on research and clinical trials.
In Belo Horizonte, one of the five Brazilian cities visited, Dr
New met Dr Alberto Wainstein, from Bioca[circ]ncer, an oncology-focused
drug development service company, which assists life sciences
companies in accessing Brazil's patient population. In March 2006,
the companies signed a contract for a Phase I Clinical Trial.
A second contract also for Phase I Clinical Trial is already being
negotiated and the contract award should be announced in January
Recent activities and outcomes for the Healthcare
UKTI sponsored visit to Hospitalara major
trade show in Sao PauloJune 2006, including a reception
and workshop for UK companies and contacts. As a result UK company
Lorne Laboratories is in talks and is about to close distribution
agreements with two Rio-based companies for their diagnostic test
kits and blood bank refrigerator lines. Also, UK company Flexicare
has had their product registrations approved and is now ready
to start selling via its distributor, Dixtal.
UK BY BRAZILIAN
Brazil has shown strong potential as a future
inward investment source. Overall outward investment from Brazil
almost doubled between 2000 and 2005 from US$ 103bn to US$ 200bn
(UNCTAD FDI Stock). This makes it the second largest outward FDI
country in Latin America, just behind Mexico.
Recent work undertaken by OCO Consulting has
also identified a significant rise in the number of FDI projects
from Brazil in to Europe, albeit from a very small base. Latest
figures up to 2004 show that Europe now receives around 12-15
projects per year. The UK, whilst at the lower end of the table
has seen a trickle of projects coming in from Brazil, including
Bank Itau, which has established in London. UKTI are currently
working with a number of active projects, including a mobile games
developer, a major beer manufacturer and a major cosmetics manufacturer.
This, together with strong evidence of key technology capabilities
in oil and gas (including bio-fuels), nanotechnology and life
sciences have presented sound evidence for further assessment.
This is currently underway, in collaboration with the British
Consulate-General in Sao Paulo and the pilot resources which have
been placed in the Post is charged with preparing an initial summary
of prospects by 31 March 2007.
£30K has been allocated from programme
funds for 2007/8 to support the pilot investigation into market
C. DETAILS OF
4 X UK AEROSPACE
The 4 companies that participated in the October
2005 mission were:
TWI: soldering technologies. The company signed
a £30k contract with another £20k contract promised
and further business expected, helped by its presence on the mission.
Delcam: CAD/CAM software. Company has an agent
in Brazil for the automotive sector and was trying to break into
a new sector.
Aeromot: castings. In negotiations for contract,
albeit for another division of the company.
Attewell: shims, part of Hampsons group.
There are no UK companies involved as risk sharing
partners on the new Embraer E series 170/195 regional jets. GKN
has a small factory in Brazil supplying aeroplane windows. Rolls-Royce
supply the engines for the older and smaller ERJ series and the
newer Legacy, the business jet based on the ERJ series.
UK content on Embraer aircraft is low (less
than 2%) but the current relationships with existing partners
make it very difficult to displace the supply chain for existing
programmes. UK companies currently show little appetite to engage
with Brazilian supply chain companies on the terms required.
However, these obstacles are being tackled (through ongoing support
and lobbying) both in the UK and Brazil by the industry itself,
Trade Associations and UKTI.
D. DETAILS OF
AND UK UNIVERSITIES
We don't have access to detailed information
on university links, since the great majority are by their nature
brokered direct between institutions and not through the British
Council. We do know, from the UK institutions that come through
and from contact that we have with Brazilian universities, that
links are numerous and range from simple student exchange through
faculty collaboration to joint curriculum projects. They range
across social sciences, humanities and science and technology.
There are about 25 British universities acting more entrepreneurially
and systematically in their promotional and exchange work with
Brazilian universities. Each of these has links with several Brazilian
institutions, largely centred in the South and South-East
E. THE NUMBER
Higher education: 1,200
Further education: 555
English language: 13,600
Higher education: 400
Further education: 90
English language: 1,900
F. DETAILS OF
IN JETCO PROCESS
Tate & Lyle
National Fatmers Union
Anglo American plc
Corus Group Plc
Birmingham Business School
Clyde & Co
Chemical Industries Association
North East Process Industry Cluster
Society of Motor Manufacturers and Traders
Motorsport Industries Association
Construction Equipment Association
Association of British Healthcare Industries
Lancashire Ambulance Service
Supply Chain EuropeEco Securities
Cambridge Display Technologies
British Chamber Brazil
J Marr Seafoods
Brazilian Chamber Members, London
Ince and Co
Eliana Filippozza, Noronha Advagados
Philip Hamer, British Chamber Brazil
G. UK COMPANIES
1. Francisco Itzaini, Rolls Royce
2. Gary Campkin, CBI
3. Joao Domenech, Head of Communications,
4. Dr Suzana Rodrigues, Birmingham
Business School, University of Birmingham
5. Richard F Davies, Director, MottMacDonald
6. Luis Antonio Gomes Araujo, Presidente,
Wellstream do Brasil Indústria e Serviços Ltda
7. Richard Taylor, President, BP Brasil
8. Luiz Sanches, General Manager, BT
9. Santiago de la Lastra and Wilson
Otero, BT Brazil
10. Stephen Chandler, EDS
11. Jose Renato Ponte, Director of Corporate
12. Ivan Clark, PWC
13. Elizabeth Leonhardt, Clyde & Co.
14. Tim Treharne, Senior Partner, KPMG
15. Professor John Child, Birmingham Business
School, University of Birmingham
16. Jane Martin, BPL
17. Wilson Otero, BT Brazil
18. Luiz Costamalan, BG Group
19. John White, Timber Trades Federation
20. Jeffries Brigginshaw, BAT
21. Marcos Maynard, EMI
22. Andrew Morgan, Supply Chain Europe
23. Eric Mayes, Cambridge Display Technologies
24. Pedro Costa, Ecosecurities
25. MacMillan, Emma Shercliffe
26. Manoj Chawla, Alexander Richards
27. Jonathan Lux, Ince and Co
28. Eliana Filippozza, Noronha Advagados
29. Philip Hamer, British Chamber Brazil
H. DETAILS OF
France and Germany have very active collaboration
programmes involving considerable bilateral investment and joint
working with the Brazilian science base. This includes joint projects
and considerable exchange of academics in both directions.
Japan is also active (investing through JICA
particularly on environmental projects) but not quite at the same
level as France and Germany.
Spain and Italy are active along similar lines
to France and Germany but at a significantly lower level of investment.
Collaboration with the US is mainly through
academics working on joint projects rather than through a structured
programme of collaboration between the science communities.
I. WRITTEN SUBMISSION
The Government provides support to UK firms
doing in business in Brazil through the Export Credits Guarantee
The Committee may wish to note ECGD's cover
policy in relation to Brazil, as set out below.
ECGD Cover & Premium Policy
1. Full ECGD cover (cash, credit and investment
insurance) is available to help UK exporters of capital equipment
and project-related goods and services to win business and invest
2. ECGD's capacity for new business (over
and above existing exposure of £200m) is substantial and
currently stands at over £375m. If demand were to exceed
this, ECGD would be willing to consider an increase in its capacity.
ECGD would be able to consider support for large projects, but
would need to assess their underlying credit quality with due
3. ECGD currently has no firm prospect in
its business pipeline for the imminent conclusion of a transaction.
But ECGD sees a fairly steady stream of enquiries from UK exporters
and investors and would welcome more business in Brazil.
4. ECGD's headline premium rate for sovereign
risk is at the minimum level for the market permitted under applicable
OECD agreements for business supported by official Export Credit
Agencies ("ECAs"). ECGD is therefore fully competitive
with the rates charged by other official ECAs.
5. ECGD is also able to set premium levels
for Petrobras, the state-owned oil company, as equivalent to sovereign
risk. This brings ECGD into line with many other ECAs. Petrobras
had previously complained that ECGD rates were higher than some
of its competitors; this is no longer the case.
6. Brazil has been a significant market
for ECGD in the past, but its exposure has been falling in recent
years as the run-off of old business has exceeded new business
taken on. In March this year, Brazil prepaid the balance (approximately
£90 million) of debt due to ECGD in respect of obligations
that had been rescheduled in the Paris Club (in which countries
facing debt service difficulties agree on the restructuring of
their OECD ECA-supported obligations). ECGD was pleased to support
the deal, which brought about a very satisfactory conclusion to
Brazil's involvement with the Paris Club. Brazil's decision to
prepay essentially reflected the growing strength of its external
position, where substantial trade and current account surpluses
and strong capital inflows have greatly boosted its reserves.
ECGD considered the move to be a well considered decision forming
part of a sound debt management strategy that had also seen Brazil
repay its entire outstanding obligations to the IMF (US$15 billion)
in December 2005.
7. Much of the business ECGD has supported
in Brazil has been in the oil and gas sector. ECGD has maintained
contracts with Petrobras over a number of years and supported
several large transactions between Petrobras and UK suppliers.
8. For example, ECGD guaranteed a US$52m
bank loan in October 2005 to finance four contracts which UK companies
(Rolls-Royce, Veolia Water Systems, ETA Process and Invsat Ltd)
were awarded in relation to the offshore P52 oil drilling platform
project for Petrobras, to be located in the Campos Basin off the
south-east coast of Brazil.
9. Other significant sectors where ECGD
has provided support in the past have been aerospace, process
plant and equipment, and metals. The defence sector has also seen
transactions, with support provided for a number of contracts
in recent years with the Brazilian Navy and Air force. The majority
of these were arranged under ECGD-backed lines of credit extended
to the Brazilian government by UK banks.
10. It is likely that, in the current benign
risk environment, Petrobras can raise finance in its own name
from the bond markets at finer rates than ECAs charge. If the
Brazilian economy were to suffer stress, it is possible that Petrobras
might wish to seek support from ECGD and the other ECAs for their
10 November 2006