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Veirano adVogados’ Monthly review of econoMic, legal, and political developMents

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n The Brazilian economy: Some positive signs amid naysaying

n Infrastructure issuesn Mining notesn Banking & financen Economy in brief

n Oil & gas in briefn Petrobras newsn Ethanol efficiencyn Environmental issuesn Electricity sectorn Science & technology

n Team Nevesn Politics in briefn Legal issuesn Environmental civil liabilityn Defense issuesn Social issues

n Diplomatic briefsn International trade

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

Economic indexes were generally positive in Brazil in 2013. Fixed capital formation grew 6.3 percent, the largest jump since 2010. Family consumption grew 2.3 percent. The services sector increased 2 percent. The industrial sector grew 1.3 percent, and agricultural and livestock sector grew 7 percent. Trade was up 2.5 percent for exports and 8.4 percent for imports.

Thus, the economy has shown remarkable resilience, according to data released on 27 February by the govern-ment’s Brazilian Institute of Geography and Statistics (IBGE). The economy as a whole grew 2.3 percent, and in particular, GDP growth of 0.7 percent in the fourth quarter was higher than expected. That result may permit

Brazil to escape a drop in its credit risk rating. Finance Minister Guido Mantega couldn’t hide his joy.

Opposition candidates Aécio Neves and Eduardo Campos were less sanguine. Neves remarked that he does not foresee a resumption of strong growth and Campos called the GDP growth mediocre. Economist Afonso Celso Pastore, a former president of the Central Bank, sees no reason for celebration either, as the figures point to growth of just 1.5 percent this year. Furthermore, growth was very uneven: agriculture grew exponentially, thanks to a bum-per crop, but other sectors were much weaker.

In a report submitted to the US Congress on 16 …

the Brazilian economy: some positive signs amid naysaying

Finance Minister Guido Mantega couldn’t hide his joy

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February, the US Federal Reserve Bank claimed that, among emerging economies, Brazil is the second most vulnerable after Turkey.

Despite uncertainties in the external perception of the Brazilian economy, however, foreign investors have started returning to Brazil, said Central Bank president Alexan-dre Tombini at the G20 meeting in Sydney. His remarks are borne out by the fact that no fewer than 14 financial groups from the United States, Europe, and Asia are applying to enter the Brazilian market.

The Brazilian market continues to attract foreign investors: during the fourth quarter of last year, their share in merg-ers and acquisitions was a record 42.6 percent, according to KPMG. The Treasury reported that in January, foreign investors held R$353.37 billion in federal debt papers, or 17.2 per cent of the total. This was the first percentage increase after three consecutive months of decline.

The appetite of foreign investors for Brazilian long-term papers continued during the month of February, influenced by attractive rates and growing confidence in Brazil’s capacity to manage its foreign debt. And in early March a Treasury auction of long-term fixed-income papers raised some R$4.5 billion. The Treasury received R$2 billion in dividends from the National Bank for Economic and Social Development (BNDES) in 2013.

In another piece of good news, the Ibovespa index recovered to the 47,000 point mark on 6 March.

economy & Business

infrastructure issuesBidding for a bridgeSeveral enterprises are bidding for the studies related to a new concession for the Rio–Niteroi bridge: CCR, Eco Rodovias, Queiroz Galvão, Inaper, EGP, Plans Engenharia, Proficient Constructors, Odebrecht, and Cowan. The pro-posals are being analyzed by the Ministry of Transport and only the winning bid for the studies will be compensated

– by the contractor who wins the construction tender.

an airport too many?The possibility of a third major airport in the São Paulo area is meeting fierce opposition from the concession holders of Guarulhos (São Paulo), Viracopos (Campinas, São Paulo), and even Brasília (Distrito Federal) airports. The other airports are concerned about falling demand.

The private-sector initiative recently announced by Presi-dent Dilma Rousseff is planned for Caieiras, 35 km from the city of São Paulo, and is worth at least R$5.3 billion. São Paulo’s new regional airport is to be the size of Gua-rulhos and is planned to start operating in 2020. It will take R$9 billion to build.

transport projects stall President Dilma Rousseff responded quickly to protests in June 2013 that principally targeted urban transport, announcing a R$50 billion program of 29 projects with federal investment in small and medium-sized cities.

So far just six have been concluded. The remainder are under construction, under study, or in the process of ten-der. Some significant projects – such as an expansion …

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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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of the metro system of Brasília and light rail vehicle (LRV) systems in northeastern capital cities such as João Pes-soa and Maceió – are paralyzed.

Almost all public transport projects are the responsibility of states and municipalities, with some federal funding. There is serious doubt whether even the main projects can be completed before the FIFA World Cup.

larger logisticsEntrepreneur Rubens Ornetto, founder of Cosan, has drawn up ambitious plans for the enterprise resulting from the merger of América Latina Logística (ALL) railway with Rumo Logística, the logistics arm of Cosan. The enterprise resulting from the merger – with a market value of R$11 bil-lion, 12,900 km of railways, 26,800 carriages, and 4 ports

– is the largest logistics entity in the country.

The plan is to create an integrated logistics company comprising a railway, a highway, and port facilities. Rumo at present operates two terminals at the port of Santos,

and ALL uses three terminals at the same port. Some 60 percent of the soy exported through Santos is carried by rail, 65 percent of the cellulose, but only 20 percent of the sugar.

The agreement, which was completed on 24 February, will now be submitted to the National Bank for Economic and Social Development (BNDES), Previ, Funcef, and RBR, none of which have veto power. Cosan will hold approxi-mately 27 percent of the capital of the company resulting from the merger.

if not by road, by riverBR163, the principal road linking the states of Mato Grosso and Pará, is in urgent need of repair at this time of the year due to torrential rainfalls. The poor condition of the road prevents the proper transport of the grain crop of the center west of Brazil to the ports of Santos and Paranaguá.

This year, however, Bunge, one of the largest commodities exporters, is using a natural waterway, the Tapajos River, to transport the crop. It is doing so with the aid of a cargo trans-shipment station and a port terminal in Amazonia, costing R$700 million.

Hurry up and waitSpanish contractor Arteris (formerly OHL Brasil) is trying to accelerate the work on the highways recently incorporated into its portfolio. To do so it plans to invest R$1.6 billion this year.

Nevertheless, six years after the concession contracts were signed, Arteris will have to wait some time to see the completion of major logistical works such as roads BR101 and BR376 (Curitiba–Florianópolis) and the urban beltway around Florianópolis.

simpler and speedier?Environmental licenses are one of the main factors delaying infrastructure projects. Accordingly, the National Department for Transport Infrastructure (DNIT) is adopt-ing a simplified procedure to authorize public works for up to 20 km of federal highways, thus accelerating the approvals procedure.

railway revisionThe government is studying revisions to the Center West Railway project, also known as the Soy Railway, which runs 1,527 km from Lucas do Rio Verde, Mato Grosso, to Campinas, São Paulo. The Federal Court of Accounts (TCU) has reduced the investment required from R$6.3 billion to R$4.7 billion, but investors are demanding guarantees against Valec, the state enterprise that would purchase the right to use of the rails over the 35 years of the concession.

taking flight, slowlyToward the end of 2012, President Rousseff whittled down her original pledge to build 800 airports in the inte-rior of Brazil to a mere 270, in itself a large commitment. So far nothing concrete has resulted, but it is clear that the corresponding investments in infrastructure, originally pegged at R$7.3 billion, were vastly underestimated.

Of the 270 contracts envisaged, only 16 have actually been signed. The tender announcement for 20 regional airports should be issued by the end of March, with another 80 through to June. As for the other 170, one will have to wait until the end of this year, at the very least.

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mining notesprospecting in the forestThe Brazilian Institute of Environment and Renewable Natural Resources (IBAMA) on 6 February authorized Vale to prospect for iron ore in an area known as N4E, in the northern part of the Carajás mine in the state of Pará. This license, which will involve 31 hectares in the National Forest of Carajás, will enable Vale to produce 312 million tons of iron ore in 2014, 2 percent above last year’s output.

Vale report cardVale will present solid results for the last quarter of 2013, due to sustained high prices for iron ore. Earnings of US$12.72 billion were 9 percent above the US$11.7 billion registered in the equivalent period of the previous year.

The company’s profit in 2013 would have amounted to R$26.72 billion, 30.1 percent over the previous year, were it not for its assumption of a tax debt of R$22.3 billion and

acceptance of Refis, a program to refinance fiscal debt vis-à-vis the federal government. As it was, net profit in 2013 was just R$115 million, against R$9.89 billion in 2012.

Vale also raised US$6 billion in 2013 through the sale of non-strategic assets, and on 27 February the company’s president, Murilo Ferreira, advised analysts that the rhythm of investment will remain strong this year.

mmX seeks partnerAfter having sold its facility at Porto Sudeste, MMX is focusing its efforts on finding a partner for its mining oper-ations. The company is part of Eike Batista’s conglomerate.

investing in miningThe Brazilian mining sector will receive investments of US$53.6 billion over the next five years, according to the Brazilian Mining Institute (IBRAM). That projection is 28.5 percent smaller than one IBRAM made two years ago, a difference of US$21 billion.

financial issuesfinancing infrastructureBonds to finance infrastructure are on the radar in Brazil. Of R$1.2 billion in infrastructure bonds, R$700 million is slated for the hydropower plant Santo Antonio, R$211 million for Ferreira Gomes, and R$200 million for the expansion of Guarulhos airport in São Paulo. So far this year, Vale has already raised R$1 billion and the Viracopos airport another R$300 million.

With the reduction of credit from the National Bank for Economic and Social Development (BNDES), there is room for capital markets to grow in long-term financing of this sort.

current account deficitBrazil’s deficit in current account for January was US$11.6 billion, the worst monthly performance ever. The Central Bank ascribes most of the figure to a higher remittance of profits abroad. Direct foreign investment amounted to US$5.3 billion, and offset only 44 percent of the gap in current transactions.

The Central Bank expects that export performance, helped by the devaluation of the real, will improve the situation.

government savingsThe government on 21 February announced a cut of R$44 billion in the federal budget, and the markets reacted cautiously to the news. It also announced the intention to save R$99 billion, 1.9 percent of GDP, to form the primary surplus. This is the same volume of public sector savings as was reached last year. Finance Minister Guido Mantega regards these figures as both equitable and conservative.

The commitment will require some tax increases this year. The first measure being considered is raising the PIS and Cofins taxes on imported cosmetics to realize R$1.5 billion in revenue.

where the money comes fromAside from taxation proper, government revenue in 2015, as defined in the federal budget, is subject to a number of variables: concessions, royalties, dividends from state enterprises and sale of assets. The budget envisages revenue of R$88.56 billion in 2014, an increase of R$12.9 billion year on year, even if there are no more royalties from the giant Libra pre-salt field.

and where it goesIn the five years through to December 2013, the Brazilian Treasury transferred R$324.25 billion to BNDES. …

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Of this figure, 48.6 percent was invested through Finame, which finances the acquisition and marketing of domesti-cally produced machinery and equipment. Another 21 percent was earmarked for a program of large investment projects.

BNDES has created a department of capital goods, which started with a portfolio of 114 projects, costing R$2.7 billion. The new department intends to launch two programs: one focusing on innovation and the other on small projects.

The bank also currently has R$500 million available for cor-porate innovation by small and medium-sized enterprises, defined as those with annual revenues below R$90 million.

western union in BrazilEight months after signing a trade agreement with Filter Group, on 27 February Western Union took over the Brazil-ian operations of the group’s foreign exchange activity.

Barbosa speaksNelson Barbosa, formerly number two in the Ministry of Finance, is now an advisor to the Lula Institute in São Paulo and the Getúlio Vargas Foundation. O Estado de São Paulo published an interview with him on 15 February, the gist of which was that the next government must make progress in the housing sector, public transport, and digi-tal inclusion.

He identified the greatest challenge as the preservation and expansion of social inclusion. According to Barbosa, the next government will face the following financial challenges:

n increasing expenditures on health, urban transport, and housing in order to promote social inclusion

n adjusting administered prices such as energy with respect to foreign exchange

n containing the profusion of targets and maintaining those already in effect, such as those for inflation and the primary surplus

n maintaining the tax burden at its present level in order to reconstitute the primary surplus.

Knocking on the doorThe Central Bank of Brazil is currently analyzing applica-tions from 14 groups from the United States, Europe, and Asia to enter the Brazilian financial system. These groups wish to establish new enterprises, but they have also expressed interest in in acquiring shareholder control of some existing enterprises.

interest inches upwardIn a meeting of its Monetary Policy Committee (Copom), the Central Bank raised the Selic interest rate from 10.50 percent per annum to 10.75 percent, in accordance with market expectations. The text of the resolution implies

that Copom may continue to raise the rate by small incre-ments at its forthcoming sessions.

meager tax reformDespite President Rousseff’s promise to modernize the tax system, an effort to reform the ICMS tax on sales and services will be filed away, since it cannot be discussed in an electoral year. The only achievement thus far with respect to tax reform has been to reduce the interstate tax on imported products to 4 percent, thus eliminating the so-called war on ports.

economy in briefcarlyle eyes consumersCarlyle, a major American private equity fund with numerous assets in Brazil, sees continuing potential in the consumer sector. Among Carlyle’s investments are a toy retail chain, a furniture chain, and the country’s largest travel agency.

odebrecht on the continentOdebrecht Group plans to double its portfolio in Latin America with a new partner. Current projects will need US$6 billion, and Goldman Sachs may come on board as a partner. Odebrecht created its subsidiary Latin Invest two years ago. It is focused on logistics and is likely to invest up to US$12 billion.

imf picture of BrazilFinance Minister Guido Mantega represented Brazil at the ministerial G20 held in Sydney, Australia, on 21–22 February. In advance of the meeting, the International Monetary Fund (IMF) had prepared a study of the world economy. It forecasts global growth of 3.7 percent this year and 3.9 percent in 2015. …

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By contrast, the IMF estimates Brazil’s growth in 2014 at 2.3 percent – the same as in 2013 – and 2.8 percent in 2015. Brazil appears as one of the four most vulnerable emerging economies, along with Indonesia, Turkey, and South Africa.

fonseca’s approachO Estado de São Paulo published on 23 February the second of a series of interviews with Brazilian economists. The interviewee was Eduardo Giannetti da Fonseca, a young economist who is an advisor to Marina Silva.

He advocates a new model of economic growth that prioritizes education and the environment; in other words, human and physical capital. Fonseca also supports an autonomous Central Bank with a highly qualified staff, working with the Ministry of Finance as an ally rather than an enemy.

He asserts that there are two guidelines for economic policy:

n a return to the three-pronged approach of inflation targets, a primary surplus, and a floating exchange rate, which was functioning well under the Cardoso government and in Lula da Silva’s first term

n macroeconomic reform that will produce clear rules and thus be more conducive to private investment in infrastructure.

a picture of the economyO Estado de São Paulo on 28 February published an interview with José Roberto Mendonça de Barros, head of his own prestigious consultancy and former secretary of economic policy in the Ministry of Finance under President Fernando Henrique Cardozo. He made the following points:

n This year started with news of low growth in 2013, political and economic crisis in emerging economies, and a very hot and dry summer, affecting not only ag-riculture but also infrastructure. The index of economic activity was very small last year, and forecasted GDP growth for 2014 has therefore been reduced from 2.3 to 2.1 percent.

n Brazil is caught in a low-growth trap, caused principally by a low investment rate of about 18 percent. This stems mainly from the government’s mistaken belief that public investment is both efficient and effective. Stimuli to private investment have been wrong and mis-directed, as the prime example of ports demonstrates.

n The key to renewed growth is private investment, which will require a new relationship of mutual confidence between the government and the business sector.

n The model for growth lies in two main factors: the resumption of private investment based on normative stability and well-conceived projects; and a return to the idea of Brazil as a global trader, replacing a focus on Mercosur and Latin America.

n The great engine of growth is Brazil’s internal market, which will only continue to grow. To take advantage of its potential it will be necessary to make investments to raise productivity.

gerdau oddly upbeatAgainst all odds, at the time when Argentina is in a deep economic crisis, Brazilian steel group Gerdau has invested US$190 million in a factory in that country, close to where it already has a steel mill.

rolling into BrazilSouth Korean company Shilla Corporation, which pro-duces roller bearings and automotive pulleys, announced on 27 February that it will open its first factory outside Asia in Tietê, 153 km from São Paulo. It will represent an

investment of about R$100 million, generating about 200 jobs within three years.

a very expensive gameThe total cost of the FIFA World Cup of 2014, to the federal, state, and municipal governments has ballooned from R$20 billion to R$30 billion, according to data released on 3 March. The Cup will be played in 10 cities.

aviation business aerostructure ambitions Akaer is a Brazilian enterprise that is close to entering the top tier of producers in the aerospace chain. About 40 percent of its output goes to Embraer, but the company also develops aerostructures for Eurocopter’s Helibrás subsidiary, Swedish SAAB, French Airbus, and US United Technologies Corporation (UTC).

Akaer is also a subcontractor for Spanish company Aeron-ova, which manufactures in Brazil and provides engineer-ing services for Boeing 747-800 aircraft. Likewise, it has been hired by Belgium’s Sonar to produce Airbus A400M and A380 aircraft.

france buys BrazilianAir France–KLM has invested US$100 million to acquire 1.5 percent of Brazilian Gol Linhas Aereas Inteligentes. The European carrier is hoping to capitalize on the expected surge in travel as a consequence of the 2014 FIFA World Cup and 2016 Olympics.

Big sale for embraerEmbraer on 13 February sold 50 of its E3 aircraft to Indian company Air Costa, for US$2.94 billion. This reinforces Embraer’s position in the Asia Pacific region, where the company already holds an 80 percent market share.

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oil & gas in briefcostly comperjComperj petrochemical complex in the state of Rio de Janeiro is one of the most expensive units in the Program of Acceleration of Growth (PAC). Under construction for the account of Petrobras, Comperj went from an original budget of US$6.5 billion in 2006 to at least US$13.5 billion in 2016. A total of 29,200 workers are currently active on the project – and they are claiming an annual wage increase. There are also conflicts with the police.

poor productivityA survey recently concluded by the Center of Excellency in Engineering, Procurement, and Construction (CE-EPC) indicates that construction and assembly projects for the petroleum industry in Brazil have productivity of only 30 percent. CE-EPC is constituted by representatives of Petrobras, Shell, and Statoil, in addition to corporate agen-cies, universities, and enterprises focusing on construc-tion and assembly. It was established in 2008.

minas gerais woos chineseThe state of Minas Gerais has announced that it will build a 250 km pipeline to carry gas from deposits in the São Francisco River basin to Uberaba, Minas Gerais, where Petrobras will install an ammonia plant.

The governor of the state, Antônio Anastasia, visited China in mid-February, accompanied by several entrepre-neurs. The purpose of the visit was to sound out the inter-est of Chinese company State Grid in associating itself with the R$1.5 billion project and others.

chinese to pick up tab?Minister of Mines and Energy Edison Lobão told newspa-per O Estado de São Paulo on 25 February that investments by Chinese companies might defray the entire cost of Premium, the Petrobras refinery in the state of Maranhão. Budgeted at US$20 billion, a figure subsequently greatly reduced by an international technical consultancy, the refinery is significantly more advanced than Premium II, in Ceará, in which the Chinese have also expressed interest.

campos losing productivityThe press and several consultancies on 23 February reported the loss of productivity in the Campos basin, which accounts for 80 percent of Brazil’s petroleum out-put. Indeed, the volume of water in offshore drilling plat-forms already exceeds 1.5 million b/d, and productivity has declined 15 percent over the last two years.

Aside from the natural decline of wells, inadequate invest-ment in new wells and poor management of reservoirs are to blame.

In August 2013, Petrobras reported that production of water exceeded that of oil. The company also stated, however, that the reservoirs’ characteristics require the injection of large volumes of water to increase their recovery factor. According to the company, the large vol-ume of water produced results from standard operating procedures.

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Oil, Gas & Biofuels …

petrobras newslaunching too soon?President Dilma Rousseff on 13 February presided over the launch of platform P-63. According to José Maria Rangel, who represents workers on the board of Petrobras, the platform left the shipyard incom-plete, with the balance of works to be carried out at sea. He and other workers’ representatives intend to take the issue to the board for discussion, complain-ing that the company is yielding to government pres-sure to launch offshore platforms while they still need major repairs.

Platform P-62 left the EAS shipyard in Pernambuco and was launched by President Rousseff on 27 December, for example, but its operations at the Roncador field were delayed due to the need to effect major repairs at sea.

Sindipetro, the trade union of Petrobras workers of northern Rio de Janeiro, is addressing a report on the issue to the Navy and the Ministry of Labor, but Petrobras denies any untoward developments associ-ated with the launch of P-62.

a new member of the boardOn 10 February the president of the Association of Petrobras Engineers, Silvio Sinedino, won an …

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ethanol efficiency

Rio Grande do Sul–based company Ecofrotas, which spe-cializes in corporate fleet management, has been keeping data on the fuel consumption of 410,000 flex-fuel vehicles for some years. The company hired KPMG to evaluate the data, which yielded a surprising result. Ethanol had an average performance equivalent to 79.52 percent that of gasoline. The received wisdom of the marketplace has put that figure at 70 percent, meaning that the performance of ethanol is more competitive with gasoline than has been believed.

environmental issuesraining too much or too little A severe drought in the south-central region and extreme rainfall in the center west have already resulted in agri-business losses of R$10 billion this year. The crops most affected are soybeans, corn, coffee, sugarcane, and oranges, in addition to beef and dairy livestock. Next year’s coffee and sugarcane crops will likewise suffer from the unusual climate conditions.

more spidersAfter just four years of research in the Amazon forest, technicians from Museu Paraense Emilio Goeldi in Belém, Pará, have discovered 169 new species. The majority (112) are from the arachnidan family.

electricity sectorno relief on billsDespite President Dilma Rousseff’s promise that electric-ity bills would fall this year by 20 percent on average, …

election to represent the association on the Petrobras board in 2014–15. With a 25-year career at Petrobras, he is also a member of the board of employee pension fund Petros, and a former director of the Trade Union of Petroleum Workers (Sindipetro) of Rio de Janeiro state.

This is only the third time that an employee of the company will sit on the board. He was also the first one to occupy that seat. Sinedino carries the banner of independence from the federal government.

Minority representation on the board has been an issue for a long time, and candidates put forward by foreign shareholders have been consistently defeated.

profit and planningPetrobras announced on 26 February a cut of R$16 bil-lion from its investment plan for 2014 to 2018 and a drop of 19 percent in its quarterly profit, to R$6.28 billion. In 2013, the company had a profit of R$23.57 billion, an increase of 11 percent over the previous year.

At the same time, the company’s debt has increased from R$61 billion in 2010 to R$221.4 billion in 2013. In 2013, the debt amounted to 39 percent of assets.

These profit results exceeded the expectations of ana-lysts but illustrate the deteriorating financial position of Brazil’s largest company. The figures were affected by continuing price controls coupled with rising demand for fuel, the domestic price of which is below that of imported products. The prices for gasoline and diesel fuel are respectively 12 and 14 percent below interna-tional prices.

The market sees many unknown factors in the compa-ny’s new business plan of US$206.8 billion for 2014–18. For one thing, the company plans to secure US$182.2 billion from cash flow and divestment.

In addition, its estimates are based on foreign exchange of R$2.23 to the dollar for 2014 and R$1.92 over the long term. These projections leave analysts uncomfortable.

raising outputPetrobras also publicized a strategic plan on 26 Febru-ary outlining targets for 2030, when the company’s output of oil and gas will have risen to 5.2 million b/d. Domestic oil production has remained below 2 million b/d over the last five years, and pre-salt production of 400,000 b/d has been insufficient to compensate for the depletion of wells in operation.

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it is likely that they will instead increase by 4.6 percent, according to a proposal made by Brazilian Electricity Regulatory Agency (ANEEL). Apparently the Account for Energy Development (CDE), which finances government social programs in the energy sector such as Light for Everybody, is running a deficit of R$5.6 billion.

selling distributorships?Eletrobras has six power distributorships, with an aggre-gate value of R$1–1.2 billion. To allow Eletrobras to invest the R$3.5 billion required by ANEEL, the company is con-sidering selling the distributorships. A study presented by Banco Santander on 15 February to the board of Eletro-bras came to that conclusion.

chinese lend helping handEnergias de Portugal (EDP) has partnered with the China Thec Group, whose infusion of funds has helped pay for the construction of a 700 MW hydroelectric plant in São Manoel, located between the states of Pará and Mato Grosso. The plant requires investment of R$2.7 billion. EDP won the tender in a consortium with Furnas, a subsidiary of Eletrobras. Each company will have one-third of the project.

state grid advancesChinese State Grid is advancing in its design to invest R$10 billion in Brazil through to 2015. In early February, in partnership with Eletrobras, the transmission company won a tender for the first stretch of the transmission line from Belo Monte to Estreito, Minas Gerais. The R$4.5 billion investment is regarded as strategic by the Chinese company.

State Grid on 18 February reassured clients that work on the giant transmission line of Belo Monte will start in August 2015. The line, over 2,000 km long, will connect

the Belo Monte plant on the Xingu River, in the state of Pará, to the southeast. The Chinese company has 51 per-cent of the project, and its partners Furnas and Eletronorte, both subsidiaries of Eletrobras, have 24.5 percent each.

The timing is crucial, since the line must come on stream 46 months after signature of the contract, which will occur in March. If rainfall prevents work from beginning as planned, it will have to be put off until March 2016.

cemig buying into colombiaCompanhia Energetica de Minas Gerais (Cemig), the power company of Minas Gerais, has teamed up with Empresas Publicas de Medellin (EPM) to participate in the privatization of Colombian energy company Isagen. Isagen owns six power plants, with installed capacity of 2.2 GW, most of it hydroelectric.

The Colombian government has a 58 percent stake in …

science & technologyantarctic research stationBrazil’s Antarctic research station Comandante Ferraz was destroyed by a fire on 25 February 2012. Construc-tion of the new 4,500 m² station, far larger than the previous 2,500 m², will proceed over October–March 2015–16 and will permit a much higher dimension of research.

Some 20 projects are being carried out in cooperation with the Brazilian Navy and the National Institute for Cryogenic Science and Technology.

generic medicine marketWhen, in October 2010, American pharmaceutical lab-oratory Pfizer announced the acquisition of 40 percent of Brazilian laboratory Teuto, established in Anápolis, Goiás, it did not have full knowledge of the importance of generic medicines. The original partnership gave Pfizer access to significant distribution networks in rural and suburban areas in Brazil and the opportunity to register and commercialize Teuto’s products in vari-ous markets outside Brazil. In addition, Pfizer got two representatives on Teuto’s board of directors.

Now that the dimensions of that market have become clear, Pfizer will exercise its option to buy the remaining 60 percent of Teuto. Pfizer is the eighth largest phar-maceutical laboratory in Brazil, with revenue of R$57.6 billion in 2013.

a new center for BoeingUS multinational Boeing Company is establishing its sixth research and technological center outside the United States. The new center will be installed at the Technological Park of São José dos Campos, in São Paulo. That is right near Embraer’s headquarters.

Brazil’s Antarctic research station was destroyed by a fire

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Isagen, and EPM already owns another 13 percent. The government wishes to sell its stake as part of an on-going privatization thrust, and suggested a US$2.6 billion price tag late last year.

the challenge of droughtRisk management will be a challenge for generating com-panies in 2014. Hydrological risk will be the determining factor, since drought may make it impossible for hydro-power plants to deliver 100 percent of their generating capacity.

In January, diesel-fuelled thermoelectric plants began to be activated due to scarce rainfall. This resulted in a 40 percent hike in diesel imports, which are likely to continue unabated. Within the last two years, the relative share of thermoelectric plants in the energy matrix has risen 286 percent.

Eletrobras is already three months in arrears on its subsi-dies on energy tariffs, owing R$1.5 billion.

to ration or not to rationElectricity rationing in an electoral year implies a heavy political cost. Light rainfall and the low level of reservoirs make energy rationing a real risk by April, according to reports commissioned by two banks for clients operating in Brazil. On 21 February, however, Minister of Mines and Energy Edison Lobão discarded the possibility of rationing even if there is no more significant rainfall this year.

To offset the effects of drought on hydropower reservoirs, gas-fuelled thermoelectric plants will have to be used, at a much higher cost. That has prompted a difference of opinion between the ministers for energy and finance, inasmuch as increased electricity prices risk exceeding the ceiling of permissible inflation.

politics, law, society

team neves

At festivities surrounding the 34th anniversary of the Workers’ Party (PT) on 8 February, both President Rous-seff and PT president Rui Falcão made speeches criticiz-ing the Brazilian Social Democracy Party (PSDB).

In response, PSDB president and putative opposition can-didate Aécio Neves used the 11 February meeting of the PSDB national steering committee to react vigorously. He has now centralized all decisions pertaining to campaign policy in the steering committee.

And on 21 February, Neves launched the candidacy of Pimenta da Veiga to the government of Minas Gerais. At the ceremony, Neves reiterated the high ethical standards of the party. While he did not direct refer to the mensalão case, the implication was clear.

The presidential campaign of Neves, who has his electoral base in Minas Gerais, is being coordinated by his succes-sor as governor, Antônio Anastasia, who will himself run for the Senate. The campaign itself is being led by people from São Paulo, starting with former president Fernando Henrique Cardoso and Senator Aloysio Nunes Ferrreira, both of the São Paulo wing of the PSDB.

Several distinguished figures from the Cardoso tenure have joined the campaign:

n Alysson Paulinelli, former minister of agriculturen Barjas Negri, former minister of healthn Celso Lafer, former minister of external relationsn José Carlos Carvalho, former minister of environment

n Armínio Fraga, former Central Bank presidentn Rubens Barbosa, former ambassador to London and

Washingtonn Edmar Bacha, one of the founders of the Real Plann José Roberto Mendonça de Barros, former secretary for

economic policyn Fabio Feldman, former deputyn Samuel Pessoa from Getúlio Vargas Foundation n Mansueto de Almeida from the Institute of Applied

Economic Research (IPEA).

Altogether, it is a high-caliber team.

The connections between the Neves team and Cardoso was further underscored in Congress on 25 February, at a joint session to celebrate the 20th anniversary of the Real Plan, a legacy of the Cardoso government that freed Brazil from chronic inflation.

Almost ignored by Workers’ Party administrations since 2003, that legacy is now presented as one of the main …

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supports of Neves’s candidacy. His address to Congress emphasized the need for a new “shock of hope and confi-dence,” similar to that brought about by the Real Plan 20 years ago.

politics in briefrousseff’s ratings declineAn IBOPE poll released on 25 February indicates that the percentage of Brazilians who regard the country’s management as good or very good declined from 43 percent in early December to 39 percent by mid- February. The greatest drop was seen in the northern and center-west regions.

The poll also reveals that the sharpest reduction occurred among voters with university education – from 35 to 25 percent. The younger the voters, the more critical they are of the government’s performance. The problem of opposition candidates Aécio Neves and Eduardo Campos is that they have not succeeded in attracting former sup-porters of President Dilma Rousseff. This segment of the electorate will be targeted by all campaigns this year.

reconfiguring the cabinetOn 12 February, President Rousseff advanced one more step in reconfiguring her cabinet by appointing Mario Borges Lemos, president of the Brazilian Agency for Indus-trial Development (ABDI), to replace Fernando Pimentel as interim minister for development, industry, and foreign trade. Pimentel will leave the federal government altogether and run for governor of his home state of Minas Gerais.

Rousseff on 19 February nominated veterinarian Enio Marques as interim minister of agriculture, replacing incumbent Antonio Andrade, a stalwart in the Brazilian

Democratic Movement Party (PMDB). Marques, who has been acting as a special advisor to the ministry, was sug-gested to Rousseff by Senator Katia Abreu, who presides over the Confederation of Agriculture and Livestock (CNA). The appointment is likely to arouse the ire of PMDB.

calming troubled watersPresident Rousseff convened a long meeting on 5 March with former president Lula da Silva and the general staff of her re-election campaign. Among the topics discussed were cabinet reform and the deteriorating relations between the Workers’ Party (PT) and the Brazilian Democratic Movement Party (PMDB).

Vice-President Michel Temer, in his capacity as honorary president of PMDB, has been doing his best to prevent a definitive rupture between the two parties, which looms on the horizon but would have to be ratified at a party convention in June. Rousseff is conducting a new round of negotiations with the PMDB leadership with a view to concluding the tumultuous cabinet reform.

Better listeners?In an effort to improve the relationship between the government and Congress, it was announced on 25 February that 12 cabinet ministers will keep office hours in the Chamber of Deputies. There they will listen to grievances and hear from those who wish to receive appropriations to finance their projects.

lula on the campaign trailFormer president Lula da Silva will play a productive role in President Rousseff’s re-election campaign, making speeches and giving interviews on her behalf. In addition, Lula travelled on 10–12 February to New York to address investors and try to improve the image of the Brazilian economy.

corporate donations under scrutinyNow that campaign financing is in the limelight and likely to be the object of a trial by the Supreme Federal Court (STF), it is worth noting that the Workers’ Party (PT), Brazilian Democratic Movement Party (PMDB), and Brazilian Social Democracy Party (PSDB) collected at least R$1 billion from business enterprises between 2009 and 2012, representing two-thirds of their revenues over the period.

Four of the 11 justices voted last year in favor of prohibiting corporate donations, but the trial had to be suspended. It will resume this year.

switching media channelsThe alliance of the Brazilian Socialist Party (PSB) and the Sustainability Network (Rede Sustentabilidade) has been allocated less television air time for its campaign than either the Workers’ Party (PT) or the Brazilian Social Democ-racy Party (PSDB). PSB leader Eduardo Campos therefore decided on 12 February to use social networks, especially Facebook and Twitter, to reach a wider audience.

Barbosa’s plansThere are insistent rumors that Chief Justice Joaquim Barbosa of the Supreme Federal Court (STF) will resign. He is legally permitted to remain on the bench until 2024, when he turns 70.

Barbosa denies any intention of running for the presidency in 2014 but is evidently tempted to leave the Court before his term, as a number of his predecessors have done. If so, there are two possible deadlines: 5 April, in time to allow him to run for the Senate; or 22 November, when his term as president of the Court is up and he will be succeeded by its vice-president, Ricardo Lewandowski.

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campos picks successorEduardo Campos has chosen Paulo Câmara, state secretary of finance of Pernambuco, to succeed him as governor of the state. The nomination raised eyebrows, since Câmara has never fought an election, but he is an able manager and administrator.

legal issuesmensalão sentences reducedThe Federal Supreme Court (STF) on 21 February over-turned racketeering convictions against eight defendants in the mensalão case, reducing their prison sentences. The ruling does not affect other convictions for corruption and money laundering.

Chief Justice Joaquim Barbosa commented that it was a very sad day for the Court. Barbosa has become widely known for his pursuit of convictions in the mensalão – or big monthly payments – vote-buying scandal, which almost brought down the presidency in 2005.

azeredo staves off judgmentDeputy Eduardo Azeredo, former governor of Minas Gerais and former president of the Brazilian Social Democracy Party (PSDB), resigned on 19 February. He is attempting to delay his judgment in the mensalão case; if he is not a deputy, he will lose his right to trial by the Supreme Court and be judged instead by ordinary courts of the state of Minas Gerais. Only time will tell.

siemens appeals banA Brazilian Federal Court on 28 February banned Siemens from participating in public tenders or signing government contracts in Brazil over the next five years, because of suspected kickback payments. Including non-federal

business, Siemens reported sales of €1.95 billion in 2013 in Brazil, where it has about 7,900 employees. The company has €75.9 billion in total revenue and in 2008 adopted a zero tolerance policy on bribery payments.

On 3 March, the company initiated a fresh appeal against the decision, which it says relates to 1999 and 2004 tenders and to internal administrative processes by the Brazilian Post and Telegraph Corporation (ECT).

terrorism, or simply protest?In view of the blood shed in demonstrations against the government in June 2013, several legislators have initiated bills to repress what they call terrorism. These bills are intended to regulate article 5, section 43 of the Constitu-tion of 1988, and have special relevance in view of the precarious security for the FIFA 2014 World Cup, to start in June of this year.

Another initiative has been put forward by José Mariano Beltrami, the secretary of public security of Rio de Janeiro state, but the Workers’ Party (PT) is opposed to any project condemning “terrorism.”

Siemens has appealed its ban on participating in public tenders

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environmental civil liability

By Ana Luci Grizzi, Environmental Law, Veirano Advogados, and Anna Elizabeth White, seconded to Veirano Advogados from Corrs Chambers Westgarth, Australia

The broad reach of Brazil’s civil liability system exposes any natural or legal person who can be directly or indi-rectly connected to environmental damage to a seem-ingly endless chain of potential liability.

In an effort to protect the environment as a common asset for all, various federal, state, and municipal laws impose joint, several, and strict civil liability on those who somehow cause, facilitate, or contribute to the occurrence of environmental damage.

This approach means that the liability applies regard-less of any fault, negligence, or willful misconduct.

Under this system, multiple players are often caught in the causation chain. Unsurprisingly, this includes direct parties such as landowners and occupiers, and operators of environmentally damaging activities. But beyond this, liability can potentially extend to

“indirect polluters” such as purchasers, contractors, or financiers of activities, products, and services that result in environmental damage.

In a market where complex supply chains and sophis-ticated financing structures are the norm, how …

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social issuesstreet protests again Violent street protests in São Paulo on the evening of 22 February mobilized about 1,000 demonstrators and resulted in 230 being jailed. This was so far the largest demonstration of its kind in Brazil. The crowd was angry at the $11 billion price tag on the FIFA World Cup, the opening game of which will be played in São Paulo in just four months. At least eight people were injured, among them five police officers, two protesters, and one journalist.

apple pickersThe lack of available labor in the agricultural sector in southern Brazil has led entrepreneurs to hire Argentinean citizens, Amerindians, and detainees in regional prisons. They have been called in to assist in the apple harvest, among others.

fewer physiciansThe Federal Court of Accounts (TCU) will analyze the government’s contract with Cuban doctors under the More Physicians program. In recent weeks, 22 doctors have left the program in protest at non-payment of sala-ries and fees to which they are entitled under the law. While it would be premature to hazard a guess how TCU will rule on the issue, it can be foreseen that the govern-ment will face a major problem with both its labor legisla-tion and its agreement with Cuba.

Brazil will pay R$937.9 million to the Pan American Health Organization (PAHO) to finance the program More Physicians, under which 4,000 more Cuban doc-tors are expected. The program at present has 9,425 doc-tors, of whom 75 percent come from Cuba. Each receives US$1,245 per month.

far does the potential exposure to environmental civil liability extend in practice?

It is common for civil lawsuits to be initiated against multiple parties as the burden of proof lies not on the claimant but on the alleged polluters, who are deemed to be in a better position to produce evidence about the true cause of the damage.

Parties with the deepest pockets tend to be pursued as the relief ordered will either be indemnification or repair of the damage caused to the environment and to affected third parties.

A liable party may have a right of recourse against other parties if it is able to prove they were responsible; how-ever, recovery claims are rarely successful because it is often impossible to establish the true cause of environ-mental damage, particularly when it is the result of mul-tiple parties’ actions (or inactions) over long periods.

Adding to the ease of initiating a civil claim without the pressure of satisfying the burden of proof is the extensive range of persons who can initiate a claim. This includes an injured natural or legal person, the Public Attorney’s Office, governments at all levels, and non-government organizations.

Whether or not a court finds a direct or indirect polluter liable of course depends on the circumstances of each case.

Some guidance is provided by a 2009 decision of the Superior Court of Justice (STJ REsp 650728/SC Ministro Herman Benjamin, Segunda Turma,- DJe

02/12/2009). Although non-binding, the judgment considered the potential chain of causation and con-firmed that equivalent civil liability for environmental damage attaches to the following:

n those who actedn those who did not act when they were supposed

to do son those who failed to actn those who did not care about others actingn those who financed what others didn those who benefited from what others did.

This decision raised particular concern for the banking sector, which had previously taken comfort from a line of decisions from the lower courts that held that civil liability did not extend to financiers as “indirect polluters” (where the borrower held, and complied with, all necessary licenses and approvals).

Mindful of the divergent judicial interpretations, public and private banks in Brazil adopt a cautious approach to financing projects that carry a potential risk to the environment by imposing environmental compliance requirements through their lending agreements.

Typically, these include requirements to comply with management principles and performance standards set out in the UNEP Principles for Responsible Investment, the Green Protocol, and the Equator Principles.

There is no guarantee that the imposition of such require-ments will be sufficient to defend a civil lawsuit, but for the moment they are a bank’s best line of defense in avoiding civil liability for environmental damage.

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international affairs

diplomatic briefs

Brazilian firm attacked in guineaConstrutora OAS is a Brazilian heavy and civil construc-tion firm. Its local office in Conakcry, Guinea, in West Africa, was attacked on 18 February. Protests against fre-quent blackouts in the country became violent and at least one person died. OAS advised that all of its staff are well.

Guineans are angered by their poverty and lack of essential social services despite the country’s mineral wealth. In August 2012, Vale, which operates a major mining project in Guinea, was also the target of protests.

fighting internet espionageBrazil and Germany will introduce a new draft resolution at the United Nations to fight espionage via the Internet. The text will be presented on 1 March at the Council on Human Rights session in Geneva. Berlin and Brasília wish to ensure that the topic remains on the agenda of the world organization.

examining foreign policyThe Brazilian Foreign Ministry (Itamaraty) on 26 Febru-ary launched a series of debates that will lead to a White Paper on Brazilian foreign policy. The dialogue will be ongoing through to 2 April, and the White Paper outlining the principles, priorities, and line of action of Itamaraty will be issued in May.

The main speaker on 26 February was Marco Aurélio Garcia, President Dilma Rousseff’s special advisor on international affairs. He defended the ideological content

of current foreign policy. Subsequent debates will focus on regional integration, global governance, the protection of citizens abroad, development cooperation, interactive trade, climate change, the geopolitics of energy, and Brazil’s interaction with the BRICS countries, and more particularly the IBSA Dialogue Forum.

meeting the popeWithin the framework of a visit to Europe, President Rous-seff had a 40-minute private audience with Pope Francis on 21 January. The following day, she participated in a cer-emony in which the Archbishop of Rio de Janeiro, D. Orani Tempesta, received his cardinal’s hat from the Pope.

international trade in brieftalking to the european unionPresident Rousseff went to Brussels on 24 February for high-level meetings on the European Union–Mercosur agreement and to discuss bilateral issues between the EU and Brazil. It was decided that definitive preliminary proposals on the former will be exchanged at a meeting on 21 March.

As for the latter, Rousseff refuted EU criticism of Brazil’s trade policies within the World Trade Organization relat-ing to fiscal incentives and the Manaus Free Trade Zone.

flying friendly skiesBrazil and the European Union are again negotiating an open skies pact that would liberalize commercial flights. A new round of negotiations has been scheduled for 24 February. Brazil currently has bilateral agreements in the air transport sector with many of the 28 EU member states, and some flight routes to Portugal, France, and the Netherlands are already saturated, restricting the

availability of routes to various Brazilian cities for such companies as TAP Portugal, Air France, and KLM.

In 2012 some 5.81 million passengers flew between Brazil and Europe, a 4.5 percent increase over the preceding year. A comprehensive agreement with the European Union could generate up to €460 million a year, and 335,000 additional passengers are expected in the first year.

Finalising an agreement is all the more important when considering that Brazil will host the FIFA World Cup this summer and the Olympic Games in 2016.

Brazilian protectionismAccording to a report released in mid-February by the WTO, Brazil had the worst performance in terms of protec-tionist measures, followed by India, the United States, and Argentina. The report indicates that the volume of new bar-riers to trade implemented in 2013 was 30 percent higher than in 2012, affecting a trade flow of US$240 billion. …

President Rousseff had a 40-minute private audience with Pope FrancisPh

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Brazil has been severely criticized within the WTO for its trade policy and the European Union, possibly endorsed by the United States, intends to resort to the tribunal of the organization. On 12 February, the EU started proceedings against Brazil’s industrial policy, citing tax exemptions on locally manufactured automobiles and the Free Trade Zone in Amazonia. The Brazilian defense will highlight the complexity of the country’s fiscal system.

staying under the umbrellaBrazil plans to request an extension of System of Generalized Preferences (SGP). In 2012, the system benefited Brazilian exports totaling US$2.3 billion, and last year through to 31 July, when it expired, that figure was US$1.25 billion. These amounts represent almost 10 percent of Brazilian sales to the United States, but the US government has transferred responsibility for extending the arrangement to Congress.

Venezuela fails to pay debtsEconomic crises in two of Brazil’s main Mercosur partners – Argentina and Venezuela – will affect Brazilian exports this year, with expected losses of US$3 billion

and US$1 billion in sales to these respective markets.

In Venezuela, Brazilian contractors have a portfolio of ongoing projects. Odebrecht Group has a 70 percent share in these, mainly in infrastructure and sanitation, but Venezuela has defaulted on US$2–10 billion in payments due to Brazilian enterprises.

Now that the erstwhile chumminess between former Brazilian and Venezuelan presidents Lula da Silva and Hugo Chávez has been replaced by Dilma Rousseff’s pragmatism, and generous financing from the National Bank for Economic and Social Development (BNDES) is drying up, Venezuela will have real difficulty in amortizing its debt to Brazil, which has fallen behind China as the country’s leading trading partner.

cottoning on to subsidies The Brazilian government, through its Chamber for Foreign Trade (Camex) asked the WTO on 19 February to ana-lyze the US Farm Bill. Minister of External Relations Luiz Alberto Figueiredo said that Brazil will for the moment not request retaliation against the United States with respect

to cotton subsidies, but much depends on the analysis of the US agricultural legislation.

Much depends on the analysis of the US agricultural legislation

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