Cablegate: Brazil: Ex-Im Chairman's Visit Opens New Opportunities For

Published: Wed 26 Aug 2009 10:42 AM
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E.O. 12958: N/A
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
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.
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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
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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.
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
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.
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