BRAZIL: Ex-Im Chairman's Visit Opens New Opportunities for

UNCLAS SECTION 01 OF 03 SAO PAULO 000506 SIPDIS STATE EEB/ODF PASS TO EX-IM BANK E.O. 12958: N/A TAGS: ETRD BEXP EINV ECON ENRG BR SUBJECT: BRAZIL: Ex-Im Chairman's Visit Opens New Opportunities for Bilateral Trade and Cooperation ¶1. Summary: In his first official international visit, Fred Hochberg, the newly appointed Chairman and President of the U.S. Export-Import Bank (Ex-Im),highlighted Brazil as a priority for the USG and committed to deepening bilateral trade relations. In meetings July 28-31 in Rio and Sao Paulo, Brazilian public and private sector officials, including Energy Minister Lobao as well as Vale, Petrobras, and national development bank BNDES heads, raised interest in cooperating in third countries, especially in Africa; increasing collaboration on energy and infrastructure; concern over the flexibility of Ex-Im requirements in comparison to export credit agencies (ECAs) from China and other countries; growing commercial demand for financing to protect against currency risk; and Brazil's increasing local content requirements and high tariffs. In conclusion to the visit, Ex-Im and Commerce agreed to work together to conduct outreach in the United States to key industry sectors to promote U.S. technology, equipment and services to Brazil. End Summary. Partnering in Sub-Saharan Africa -------------- ¶2. Vale do Rio Doce's CEO Roger Agnelli, who participates in the U.S.-Brazil CEO Forum, said the United States can help Brazil guard against political risk as it competes in other markets like Africa. He proposed partnering with U.S. firms backed by USG financing to do more business in Africa. John McAdams stated that Sub-Saharan Africa is a priority for the U.S. and that Ex-IM would be willing to tie financing to U.S. exports to gain joint market share in Africa. The Ambassador discussed possible next steps on developing a cooperative strategy in Africa combining market entry for U.S. companies with financing tied to educational improvement, clean water, infrastructure development and health issues. The Ambassador suggested that Vale's finance executives meet with a broader set of representatives at Ex-Im in Washington as well as key members of Congress. Fabio Rua, Vale's Finance Director suggested meeting September 8 in Washington to discuss developing a strategic plan for Africa. (Note: FCS helped Vale set up a meeting with Ex-Im Bank in Washington on that date.) ¶3. Agnelli also indicated that Vale is looking for a strategic partner to finance infrastructure development in Brazil, and would be in favor of the United States participating in these projects. McAdams responded that high tariffs and local content requirements make market entry difficult for U.S. companies in Brazil. Agnelli asserted that was only the case for oil and gas, and that mining did not present the same import challenges. Challenges to Accessing Ex-Im Financing -------------- ¶4. In a separate meeting with Petrobras CFO Almir Barbassa and Director of Corporate Finance Neyde Sfadi, Chairman Hochberg said he was anxious for Ex-Im to move forward with disbursing money from the USD 2 billion preliminary commitment extended to Petrobras in May 2009. Barbassa said Petrobras is working to expedite the process, given the U.S companies competitive advantage and experience in the oil and gas industry, but noted that many other ECA's (e.g. Italy, Japan, China, Canada) finance sales to Petrobras for equipment that is locally sourced and manufactured, while Ex-Im does not. Barbassa said flexible financing terms were an important factor in Petrobras equipment purchases and noted that China has offered financing in exchange for 200,000 barrels of oil per day over 10 years at a set price. VP McAdams responded that Ex-Im can accept oil as payment as well. ¶5. Barbassa said Petrobras plans to spend USD 174 billion over the next five years on pre-salt oil development. The Ambassador suggested that, given local content requirements (which range between 60-80% depending on the block under exploration),Brazil's National Development Bank (BNDES) and Ex-Im identify areas of partnership to allow U.S. companies to enter the market while adhering to local content requirements. Sfadi responded that U.S. Maritime Administration (MARAD) restrictions make supplier certification challenging and difficult for Petrobras to meet Ex-Im's requirements. She added that Petrobras was more likely to use the USD 2 billion to cover USD 700 million in long term services contracts and USD 300 million in medium term services contracts because of MARAD. The Ambassador suggested that Ex-Im and Petrobras work closely to develop 3-4 working models on how to begin disburse loans for Petrobras to purchase U.S. equipment, technology and services. One model could be receiving oil in exchange for credit. SAO PAULO 00000506 002 OF 003 Seeking Public Partnerships ¶6. Rio Governor Sergio Cabral hosted a meeting for the Ex-Im delegation to outline priorities in infrastructure and industry, foster partnerships with local officials, highlight USG financial support for U.S. companies bidding on infrastructure opportunities in Rio. The Governor began by emphasizing the significance of President Obama sending the Chairman to Brazil on his first international trip. Chairman Hochberg replied that in celebration of Ex-Im's 75th anniversary, the bank is redoubling efforts to help U.S. exporters with financing through credit, guarantees, and, in some cases, direct loans. He stated that 2009 has been Ex-Im's biggest year with USD 60 billion in global exposure and USD 20 billion in new loans this year, which is exceptional given the lack of credit and liquidity in the market. He also highlighted Ex-Im's new environmental loan programs for renewable energy and wastewater treatment. The Chairman stated that Ex-Im and Commerce could match U.S. companies with financing to meet Rio's needs. The Governor responded that Ex-Im might want to consider opening an office in Rio to stay competitive, since China had already done so. New Potential Areas of Cooperation -------------- ¶7. Reflecting the growing collaboration in the energy sector, Minister of Mines and Energy Lobao met with Chairman Hochberg in Sao Paulo on the margins of the visit of Chilean President Bachelet. Lobao welcomed Ex-Im's visit in the context of Brazil's plans to expand its current oil production and investment in a wide range of infrastructure projects including ports, airports, and other key areas for competitiveness. Lobao also expressed a desire to work with the U.S. in finding solutions to global warming and financing for development projects in third countries, specifically Sub-Sahara Africa. Chairman Hochberg responded that Africa is a priority for the Obama administration and hopes the two governments can find opportunities for joining forces. Lobao said his Ministry will need help to develop the pre-sal oil fields and asked about flexibility in Ex-im U.S. content and shipping requirements. Hochberg replied that Ex-Im is seeking clarification on certain regulations but that shipping requirements are issue that the U.S. Congress would need to address. Minister Lobao concluded the meeting by arranging for Chairman Hochberg to briefly greet Cabinet Minister Dilma Rousseff and President Lula. ¶8. The Ex-Im delegation also met with leaders of the Sao Paulo State Federation of Industries (FIESP),including President Paulo Skaf and International Director Roberto Gianetti de Fonseca. FIESP expressed interest in increasing Ex-Im financing for its members, but cited Ex-Im's financing requirements as an impediment. Skaf expressed concern about Chinese commercial expansion in Brazil, saying Brazilian companies preferred to do business with and compete against U.S. companies - not Chinese ones. Roberto Gianetti mentioned the U.S. - Brazil agreement to work together on ethanol in a third country as an example of our countries can work together. GE Success Story -------------- ¶9. As an example of a successful local U.S. firm, Rogerio Patrus, President and CEO for GE in Latin America, and GE Brazil President Geraldo Ferreira briefed Chairman Hochberg of their companies experience as a model for other U.S. firms looking at the Brazilian market. GE discussed how they had gone from selling locomotives in Brazil to importing them unassembled and assembling them to sourcing a large portion of the parts in Brazil to exporting U.S. designed and engineered locomotives made in Brazil with 30 % Brazilian content to third countries. They have used similar market strategy and development in other areas of their business and are currently applying it to their product line for wind energy, a market that is expected to expand quickly in the next few years. Chairman Hochberg highlighted Ex-Im's new 18-year line of credit for renewable energy, environmental and green projects, which the GE officials welcomed for potential customers who want to build wind energy or water purification for ethanol plants. The GE officials echoed previous themes about Ex-Im financing requirements including MARAD regulations of using U.S. flag carriers for shipping. ¶10. GE also discussed how Ex-Im might collaborate with BNDES, which GE uses extensively to finance projects. They confirmed the need for "bridge" financing for projects before there is an income stream. As BNDES does not finance this portion of a project, which SAO PAULO 00000506 003 OF 003 causes problems with independent energy producers, Ex-Im VP McAdams suggested Ex-Im and BNDES make lines of credit more compatible to co-finance projects, either by financing the equipment and machinery for projects or actual project expenses. Working with Brazil's Development Bank -------------- ¶11. In a follow on meeting with BNDES President Luciano Coutinho, Chairman Hochberg emphasized their eagerness to work closely with BNDES. The Chairman noted three specific areas for greater Ex-Im activity: (1) small business lending, (2) renewable energy, and (3) Sub-Saharan Africa. In response Coutinho suggested greater Ex-Im/BNDES cooperation on technical staff and information exchanges to facilitate establishment of BNDES's export-import bank and energy sector cooperation. Coutinho proposed the technical exchange as extended visits by BNDES staff to Washington to learn more details about Ex-Im's operations and energy cooperation in jointly sponsored "Am-Cham-type seminars" that would provide companies with information about investment opportunities in Brazil. Both sides agreed that Ex-Im/BNDES efforts could culminate in a joint appearance at an October 26 energy conference in Houston. Ex-Im agreed to provide a draft agenda and timeline to BNDES. Coutinho stated that the best step Ex-Im could take would be to pro-actively reach out to U.S. companies, informing them of opportunities here and encouraging them to export to Brazil with Ex-Im financing. Comment -------------- ¶12. The Chairman's visit identified several new opportunities for Ex-Im to expand its presence in Brazil, including working with local institutions to raise awareness among U.S. companies of opportunities in Brazil and to pair Ex-Im financing with U.S. goods, technologies and services. Opportunities in the energy and infrastructure sectors, third country cooperation with Brazil, and closer Ex-Im/Commerce collaboration were emphasized themes. As a next step, Ex-Im and Commerce are moving forward with plans to work on an initial regional presentation for the Brazil Energy and Power event in Houston on October 26 sponsored by AmCham Rio. At the same time, technical issues such as MARAD regulations in the U.S. and local content production requirements in Brazil, remain as impediments to increasing Ex-Im's financing portfolio in Brazil. Likewise, Brazilian proposals to cooperate in third countries will first require concrete projects in order to identify clear opportunities for joint financing with Ex-Im and Brazilian institutions. ¶13. Chairman Hochberg was accompanied by Ex-Im Chief of Staff Kevin Varney, Senior Vice President for Export Finance John McAdams, and Senior Business Development Officer Xiomara Creque. This cable was coordinated with Consulate General Rio de Janeiro and cleared by Embassy Brasilia. EX-IM delegation cleared this message. 1