Select Committee on Trade and Industry Written Evidence


Supplementary memorandum submitted by UKTI



  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


Legal Services

  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 successful outcome.

  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 Sector:

  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.


Carbon Credit

  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 responsibilities.

  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.

Environmental Technologies

  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 Sector:

  MoU—During 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 agreement.

  Sales Lead—SGW 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 SANEPAR—one 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.


Leigh's Paintings

  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 from Petrobras.

Sunrise Systems

  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 sides;

    —  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 sector—provides 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 (MOU)

  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 at $1.5m.

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 2007.

Recent activities and outcomes for the Healthcare Sector:

  UKTI sponsored visit to Hospitalar—a major trade show in Sao Paulo—June 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.


  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 prospects.


  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.


  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



  Higher education: 1,200

  Further education: 555

  English language: 13,600


  Higher education: 400

  Further education: 90

  English language: 1,900




  Tate & Lyle


  National Fatmers Union


  British Airways

  BAE Systems




  Eli Lilly




  Lloyds TSB


  Clifford Chance



  Anglo American plc

  Cadbury Schweppes

  Corus Group Plc



  Rio Tinto

  Rolls Royce

  Mott MacDonald


  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


  Alexander Richards

  Ince and Co

  Eliana Filippozza, Noronha Advagados

  Philip Hamer, British Chamber Brazil


    1.  Francisco Itzaini, Rolls Royce

    2.  Gary Campkin, CBI

    3.  Joao Domenech, Head of Communications, GSK

    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 Ltda

    8.  Luiz Sanches, General Manager, BT Brazil

    9.  Santiago de la Lastra and Wilson Otero, BT Brazil

  10.  Stephen Chandler, EDS

  11.  Jose Renato Ponte, Director of Corporate Affairs, BG

  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


  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.


  The Government provides support to UK firms doing in business in Brazil through the Export Credits Guarantee Department (ECGD).

  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 in Brazil.

  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 care.

  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.

Past business

  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.

Business Prospects

  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 projects.

10 November 2006

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