Brazil How to Do Business in Brazil 2011

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B R A Z IL

2011 Edition



2

WELCOME

TO BRAZIL!

Area

Brazil is South America’s largest country, about 22 timeslarger than Norway, and in fact larger than continentalUSA. Brazil shares a border with 10 other South American countries and stretches over 3 time zones.

Rio de Janeiro

Brasilia

Sao Paulo

Amazonas

Parana

Macae



3

www.howtodobusinessinbrazil.com

The Portuguese

discovered Brazil in 1500.Brazil remained a Portu-guese colony until 1822, when independency wasdeclared.

Brazil has the world’s eighth largest economy,

and one of the fastest growing. Projected growthfor 2011 is around 5%. Half of Latin America’s totalGDP is generated in Brazil.

Brazil has a spectacular na-

ture. The Amazonas basin ishome to both the world’s larg-est rain forest and the world’slargest river. Brazil has morethan 5,000 km of coast lineforming an almost continuousstretch of white sand beaches.The Pantanal wetland area is

globally unique for its animaland plant diversity, and theIguaçu waterfalls are larger than the Niagara Falls.

Social development. Over the last5 years, more than 25 million Brazil-ians have been lifted out of poverty,and crime rates are dropping in thelargest cities.

Population. Brazil’s population is almost 200million. The rich Southeastern region is themost populous, dominated by people of Euro-pean descent. The poorer Northeastern regionis a mix of people with European, African andindigenous roots. The vast Western, Cen-tral and Northern regions are relatively thinlypopulated.

The carnival of

Brazil is worldfamous, butrepresents justa small part ofthe country’sexceptionally

rich cultural life.

Brazil is a republic, with a president whois directly elected for a 4 year term. Thepresident is both the Head of State and theHead of the Government, and has extensivepowers. Dilma Rousseff, elected in 2010, isBrazil’s first female president.

Voting is mandatory in Brazil for allliterate citizens aged between 18 and 70.

The most important cities are Brasilia (the capital),Rio de Janeiro (the oil&gascapital) and Sao Paulo (thecommercial engine). SaoPaulo (picture) has morethan 20 million inhabitants.

Football is what most people associate withBrazil. The five time world champion will hostthe football World Cup in 2014 as well as theSummer Olympics in 2016, and will see massiveinvestments in infrastructure.

Export. Brazil is the world’s biggest coffeeexporter. But evenlarger export articlesare soy beans,steel, petroleum andchicken products.

Brazil has discovered enormous

offshore oil reserves. This is theengine in Brazil’s current economicboom, and has generated a strongand growing demand of all kinds ofproducts and services related to theoil sector, as well as reviving the Bra-zilian maritime industry. Over the nextfive years, a total investment of more

than USD 300 billion is expected inareas where Norwegian suppliers inmany cases are world leading. Thecenter for the oil activity is Rio de Janeiro, with nearby Macae as animportant hub.

Lusoimages / Shutterstock.com



This is the second edition of the “How to Do Business in Brazil” guide, developed for INTSOK,Innovation Norway and the Norwegian General Consulate in Rio de Janeiro.

The report is written by Inventure Management in Rio de Janeiro, and is an expanded, updatedand completely revised version of the first edition.

Inventure Management is an establishment partner for oil, offshore and maritime companiesentering and expanding in the Brazilian market.

Rio de Janeiro, August 2011

INTRODUCTION

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The aim of this guide is to give a structured overview of the various issues and challengesforeign companies face when establishing themselves in the Brazilian market.

The content is divided into 3 sequential phases: 1) Pre-entry considerations, 2) Start-up phaseand 3) Running operations. Most of the issues covered in the start-up phase are of course alsorelevant for the operational phase, but are covered here to emphasize the importance of estab-

lishing solid systems and procedures from the very beginning.

Content overview:

HOW TO USE

THIS GUIDE

PART 1:

PRE-ENTRY

CONSIDERATIONS

PART 2:

START-UP

PHASE

PART 3:

RUNNING

OPERATIONS

Risks

Defining a Brazil Entry

Strategy

Market Overview

The Need for Production

in Brazil

Available sources of

Financing and Support

Company Establishment

Visa

HR, Brazilian Employees

Expat Management

Paying Taxes

Accounting

Legal Issues - Contracts

Petrobras Supplier

Certification

Business Culture

Import

Local Content

Corporate Social

Responsibility

5


All USD and NOK figures in this guide are based on BRL (Brazilian Real) values, at the exchange rates of 1 August 2011:1 USD = 1.6 BRL.1 BRL = 3.5 NOK.



PART 2: START-UP PHASE 26

Introduction 28Company Establishment 29

Deciding on Company Type 29Establishment Process 30Corporate Capital Needs 30

Visa Requirements 31Overview 31Is it Necessary to Apply for a Visa for Regular Business Trips to Brazil?

32

Obtaining a Visa 32

HR, Brazilian Employees 33Overview 33

Salaries and Employee Costs 33Managing the Employees 34Terminating a Contrac 35 Alternatives to Hiring 35

Expat Management 36Salaries and Employee Costs 36Practical Tips for New Expats in Brazil 37

Paying Taxes 39Corporate Taxes 39Tax on Dividends 42Tax on Capital Gains 42Tax Implications if Invoicing from Abroad 42Individual Income Tax for Expats 42Tax Deduction Programs 43

Accounting 44Brazilian Accounting and Financial Terminology 44 Audits 45

Legal Issues 46Introduction 46Legal Assistance 47Contract Issues 47Property Law 47

Petrobras Supplier Certification 48Overview 48

Supplying to Petrobras 48Business Culture in Brazil 52

Overview 52Typical Issues 52Global Cultural Types 54

Introduction 4

How to Use this Guide 6

PART 1: PRE-ENTRY CONSIDERATIONS 8

Introduction 10Risks 11

Corruption and Transparency 11Running Operations 11

Defining a Brazil Entry Strategy 12Market Research 12Business Setup 12

Market Overview – The Brazilian Oil, Offshore

and Maritime Market

14

Introduction 14The Pre Salt Opportunity 14The Main Players 16

Summary of Petrobras Business Plan 18OGX 22The Shipbuilding Market 23

The Need for Production in Brazil 24

Available Sources of Financing and Support 25Innovation Norway 25INTSOK 25GIEK – Garanti-Instituttet for Eksport-Kreditt 25Nopef – the Nordic Project Fund (“Nordisk Eksportfond”)

25

CONTENTS

6




PART 3: RUNNING OPERATIONS 56

Introduction 58Import 59

Overview 59Import License 59Import Taxes for Goods 60 Authorities Involved in the Import Process 60Special Customs Regimes 61REPETRO 61

Local Content 63Introduction 63Local Content Levels 64Local Content Implications for Operators 66Local Content Implications for Suppliers 66

Regulations 68

Corporate Social Responsibility 69CSR Impact in Brazil 69Tax Benefits for Donors 69Existing Norwegian-Brazilian Projects 69

APPENDICES 70

Appendix 1: Useful Contacts 72

Appendix 2:

Labor Law 74

Appendix 3:

Accounting and Financial Reports 76

Appendix 4:

Differences Between “Limited Liability” and “Corporation” Company Types

77

Appendix 5:

Framework and Stakeholders 78

Appendix 6:

Brazilian Shipyards 82

7




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CONTENTS PRE-ENTRY CONSIDERATIONS:

10 Introduction

11 Risks

12 Defining a Brazil Entry Strategy

14 Market Overview

24 The Need for Production in Brazil

25 Available Sources of Financing and Support



9



HOW TO DO BUSINESS IN BRAZIL10

Companies considering a Brazilian marketentry are strongly advised to invest sufficienttime in market analysis and strategy prepara-tion.

A crucial success factor is the willingnessand ability to dedicate sufficient resourcesto the Brazil entry, in terms of both moneyand personnel. It is likely that some of your key staff will have to divert their focus fromother markets to Brazil over a significant timeperiod.

It is important to remember that frameworkconditions and premises are different from what you are used to. Norwegians tend toconnect well with Brazilians at a personallevel, making it difficult to realize that thebusiness cultures actually are very different. A lot more patience and continuous follow-up is necessary in Brazil than in Norway, inorder to build enough trust to do business.Without this trust, activities will developslowly or not at all.

INTRODUCTION

The Brazilian bureaucracy can be stifling.The World Bank’s 2011 “Ease of doingBusiness” index places Brazil as one of themost difficult places in the world to do busi-ness – ranked as number 127 out of 187economies tracked by the institution. Thescore for 2011 is worse than for 2010, indi-cating a development in the wrong direction.

There are many sources of information andadvice. INTSOK and Innovation Norway areexcellent sources for initial market informa-

tion and analysis. Further and more special-ized strategic advice may also be necessaryin this phase.

Brazil offers vast opportunities in the oil, offshore and maritime

industries. At the same time, it is a complex and challenging

market to enter, with many aspects not obvious to Norwegian

companies.


Ease of doing business in Brazil.




RISKSDoing business in Brazil exposes a company to other types of risks than in

Norway. The most commonly mentioned issue is corruption, but there are also

other risks related to business operations. They are all manageable, but should

by no means be ignored.


Corruption and Transparency

Corrupt practices can be found at all levelsof public administration in Brazil. But corrup-tion is not endemic in the sense that bribes would be necessary in order to conductbusiness. It is perfectly possible to run acompany in Brazil without paying any bribes whatsoever. In fact, paying a bribe would inmany cases create more problems than it ismeant to solve.

A common way of trying to solicit a bribe isto “create a problem to sell a solution”. Pub-lic processes are complex, and it is not un-common for a foreign company to discover that it has made a wrong turn or skipped astep in a procedure, only to realize that thisis not easily reversible. When stuck, it can betempting to buy a “quick solution” to resolvethe problem, which could be both costly andrisky, and of course in direct conflict withethical standards of doing business.

Public procurement is also an area suscep-tible to corruption. This is sometimes in theform of technical specifications favoring aspecific supplier in a tender process, but canalso be related to payments in order to obtaincontracts/concessions or licences/permits.

Risk Mitigation

The most important way of avoiding corrup-tion is to pay close attention to all detailedsteps and requirements when dealing with au-thorities. If all procedures have been followed,there simply doesn’t exist a “problem” where

you can buy a “solution”. This also goes for customs clearance of imported goods – anyminor discrepancy, for example in the shippingdocuments, can stall a shipment, and retrievalcan be costly and time consuming.

Be very aware of middlemen or agents offer-ing shortcuts for an extra fee. It is commonto use middlemen (“despachantes”) to deal with the practical issues of the bureaucracyon your behalf, but any shortcut for an extrafee is inadvisable. This also goes for regis-trations with Petrobras, authority permits etc.It is not necessary and can be very costly.

Fostering an anti-corruption mindset in thecompany and compliance of anti-corruptionstandards are very important measures, and

a clear management responsibility.

Running Operations

Apart from corrupt practices, running a com-pany in Brazil also poses a number of risksrelated to operational activities. This includestaxation, import, immigration, compliance with regulatory requirements, legal disputesand security issues.

Risk Mitigation

Regarding operational risks, we have in-cluded the main risks and mitigation strate-gies in the relevant chapters throughout thisguide. But a general advice to minimize riskis to do proper background checks of allbusiness counterparts. This important secu-rity measure is commonly skipped by foreigncompanies.

Doing a proper background check in Brazilis complex and involves getting documentsfrom around 15 different public offices andentities. In many cases the publicly available

information is not enough, and cooperation with the investigated company’s accountantis necessary.





Market Research

In general, the market opportunities for oil/offshore/maritime related goods andservices are excellent in Brazil. But it is ofutmost importance to invest in proper marketresearch for your specific product. Marketand regulatory issues specific to Brazil oftendictate a different strategic angle than what would seem obvious in other markets.

A surprising number of companies, includingNorwegian ones, enter the Brazilian market without detailed market analysis. This oftenresults in unnecessary time and money spentrealigning operations to the market realities.

The minimum a company should know aboutthe market for their specific product/serviceincludes:

Current and projected total demand Main purchasers, competitors and their

relationships Most likely potential customers, current

and future opportunities Potential market share Market and regulatory obstacles Supply chain dynamics Macro issues affecting the product/

service Entry costs

Business set-up

The ideal setup for an individual company will of course vary, and a thorough pre-entryanalysis is indispensable.

Such research should be adapted in line withthe main available setup options:1. Serving the Brazilian market from

Norway2. Selling through a Brazilian agent/repre-

sentative3. Establishing a Brazilian entity

a) Establishing a fully owned subsidiaryb) Establishing a joint venture with aBrazilian companyc) Acquiring an existing Brazilian company

Experience shows that many foreign com-panies underestimate the need to investsufficient time in defining the Brazil strategy.Each case is different, and it is not possibleto cover any company’s specific considera-tions in a general guide. Two fundamentalquestions when considering a market entryin Brazil are:

1. What is the market potential for

my product in Brazil? (See MarketResearch.)

2. What is the best business setup?

(See Business Setup)

DEFINING A BRAZIL

ENTRY STRATEGYThe Brazil entry strategy should depend on careful

and detailed analysis of the market potential,

possible partners, supply chain positioning, needed

investments, and a range of other financial and

strategic considerations.





1. Serving the Brazilian Market from

Norway

It is possible to serve the Brazilian marketfrom Norway, but in practice, it is very dif-

ficult to successfully develop sales in Brazil without a continuous physical presence.Even frequent visits to Brazil will generallynot be sufficient to pick up opportunities,maintain and build relations with customers,or handle the necessary on-the-ground co-ordination. In addition, invoicing from outsideof Brazil generally adds up to 25% in extrataxes (see chapter 2.6 Paying Taxes). Fur-thermore, the main purchaser in the Brazilianmarket, Petrobras, demands that all its certi-fied suppliers for supplies to Brazil also must

have a legal representative in Brazil.

Some suppliers with unique and strategicallycritical technology, however, might be able toserve the Brazilian market from Norway, atleast for a period of time.

2. Selling through a Brazilian Agent/

Representative

A number of Norwegian companies com-mercialize their products (and in some casesalso services) through a Brazilian agent or representative. This can work out well for suppliers that manage to become an impor-tant part of the portfolio of a focused andefficient agent.

Advantages: Low investment costs The agent already has an established

industry network, can follow up on op-portunities and is familiar with Brazilianregulations, requirements and businesspractices.

Disadvantages: Many agents carry a (too) high number

of representations, limiting the attentionthey are able to give to your products/services.

Coordination and reporting issues. Invoicing from outside of Brazil generally

adds at least 25% in extra taxes (seechapter 2.6 Paying Taxes)

3. Establishing an Entity in Brazil

Establishing own operations in Brazil isincreasingly becoming a business necessity,for various reasons: A continuous presence is necessary

to maintain and develop client relation-ships. An agent might not be able togive enough attention to your company.

Increased political pressure for localcontent (a part of the product must beproduced in Brazil) makes it an advan-tage, and in some cases a requirement,for foreign suppliers to have productionor assembly functions in Brazil.

Invoicing from Brazil saves at least 25%in taxes levied on invoices from abroad

(see chapter 2.6 Paying Taxes). In order to qualify most goods/services

for the Petrobras Master Vendor List,a legally established local presence isnecessary.

The main establishment options are:a) Establishing a fully owned subsidiary(most common)b) Establishing a joint venture with a Braziliancompanyc) Acquiring an existing Brazilian company.

The main focus of this guide is option a)Establishing a fully owned subsidiary. This isthe most common entry form for Norwegiancompanies in Brazil.

The contents of the guide are also valid for options b) and c), but these options poseadditional sets of challenges, and shouldalways be based on a solid due diligenceprocess. The increased attention neededfor coordination and control should not beunderestimated. Because of the managerial

and cultural challenges involved, it is neces-sary to put in place specialized transitionmanagement until operations and proce-dures are aligned.

Foreign companies are often offered to buyan existing, sleeping company in order to getstarted more quickly. However, the bureau-cracy around necessary alterations of bylawsand registrations generally makes this justas time consuming and costly as starting anew company from scratch. In practice, this

normally saves neither time nor money, andcan add potential risks.

...issues specific

to Brazil often

dictate a differ-

ent strategic

angle than what

would seem

obvious.





For companies entering Brazil, detailed mar-

ket research will be necessary to determinethe entry strategy. Both INTSOK and Innova-tion Norway, as well as specialized firms, canassist with this kind of research to create anunderstanding of the market potential for agiven product or service.

The end clients in the Brazilian oil andoffshore market are the E&P operators andasset owners, with Petrobras being the mostimportant one by far. From a macro perspec-tive, the Petrobras Business Plan is the key

driver for market opportunities. But sincethe oil and gas exploration monopoly wasabandoned in 1997, other E&P operatorshave also positioned themselves in the Bra-zilian market and are becoming increasinglyimportant.

Rig- and ship owners, engineering compa-nies, ship yards and other main contractorssupporting the operators also represent ex-cellent opportunities for Norwegian technol-ogy and services.

This market overview lists the main playersand drivers in the Brazilian oil/offshore andmaritime/shipbuilding markets, with twocompanies examined in more detail: Petrobras, as the key driver of opportu-

nities and pivotal for all oil and offshoreactivity in Brazil.

OGX, the largest fully private Brazil-ian oil company, with very aggressiveexpansion plans.

MARKET OVERVIEW– THE BRAZILIAN OIL, OFFSHOREAND MARITIME MARKET

The overall growth outlook for the Brazilian market is impressive,

creating vast opportunities in the oil, offshore and maritime

industries.

The Pre Salt Opportunity

Brazil has discovered gigantic potential oilreserves off the coast of South-East Brazil,in an area referred to as the Pre-Salt Area.The potential of this area is a key driver ofthe current oil investment boom in Brazil.

It is important to remember, however, thateven without the Pre-Salt Area, Brazil hasan oil output equal to that of Norway, setto double over the next 10 years. The mainpart of the growth forecasted in Petrobras’

business plan will come from already provenresources outside the Pre-Salt Area. Thevast Pre-Salt opportunities, which may welldwarf existing production, will come on topof this.

Geological Formation

The Pre-Salt layer is a geological formationon the continental shelves off the coast of Africa and Brazil, holding vast reserves of oil.It is called pre-salt because it forms a range

Structure of thePre-Salt area.





of rock that stretches under an extensivelayer of salt, which in some areas of thecoast reaches a thickness of up to 2,000meters. The term “pre” is used because, in

geological history, these formations havebeen deposited before the layer of salt. Thetotal depth of these formations, which is thedistance between the sea surface and oilreservoirs beneath the salt layer, can reachmore than 7 thousand meters.

Recent Discoveries

Petrobras’ main oil discoveries have beenmade quite recently in the pre-salt layer be-tween the states of Santa Catarina and SãoPaulo, where large reserves of light oil have

been identified. In the Santos Basin, the oilalready identified in the pre-salt area has adensity of 28.5 ° API, a low acidity and lowsulfur content. These are characteristics ofhigh quality oil and a high market value.

The first results indicate very significantvolumes. To illustrate, the Tupi accumulationin the Santos Basin alone contains estimatedrecoverable volumes of between 5 and 8billion barrels of oil equivalent (oil and gas).The Guara well, also in the Santos Basin,has volumes from 1.1 to 2 billion barrels oflight oil and natural gas with specific gravityaround 30 º API.

The high success rate of exploratory drillingand the huge reserves found so far, givefavorable indications of the potential of thisarea. The estimates for the reserves rangefrom 30 to 100 billion barrels.

In May 2010, Petrobras started a long-term test in the Tupi area, with a capacityto process up to 30 thousand barrels of oil

equivalents per day. As this was the first oilproduced from a Pre-Salt field, it is consid-ered an important milestone,

Regulation of the Pre-Salt Area

After the Pre-Salt potential was known, apolitical process started in Brazil to changethe regulation of this area. After years ofpolitical discussion, a new regulation regimefor the Pre-Salt area was established in theform of a production sharing regime.

The production sharing system apply to allareas that have not yet been put up for bid-ding in the Pre-Salt area, and for other areasthat may be defined as strategic by theNational Energy Policy Council (CNPE).

Under the production sharing regime, thecontractors take on the activity risks, and will only be reimbursed if they make com-mercial discoveries. This payment is made with the cost in oil (the so-called cost oil), with an amount sufficient to reimburse thecontracted company’s expenses. The restof the production (excess oil, the so-calledprofit oil) is divided between Brazil and thecontractor(s).

Under the production sharing regme, thegovernment of Brazil can sign two types of

agreements:1. Solely with Petrobras (100%), or 2. Based on tenders in which companies canparticipate freely. In these cases, Petrobras will both be the operator and hold a minimumequity stake of 30% in all consortia.

It is important to emphasize that for all other areas, the current concession regime willcontinue, and thus provide important oppor-tunities for foreign operators.

This map shows the Pre-Salt Area (marked in darker blue).





The Main Players

Operators

Petrobras is by far the largest oil pro-ducer in Brazil. Statoil is on its way tobecoming number two, when the Statoiloperated Peregrino field reaches itsplanned production of 100 000 barrelsper day in 2012.

OperatorPetroleum

(BPD)

Petrobras 1,881,455

Shell Brasil 75,235

Chevron Frade 67,825Empresa Devon (BP) 22,840

Sonangol Starfish 987

Statoil Brasil 885

Petrosynergy 602

Alvorada 558

UP Petroleo Brasil 351

Partex Brasil 278

Petrogal Brasil 217

UTC Engenharia 194

Recôncavo E&P 192

W. Petroleo 162

Severo Villares 26

Cheim 26

Norberto Odebrecht 18

Silver Marlin 15

Koch Petroleo 9

Egesa 7

Gran Tierra 6

Genesis 2000 6Vipetro 5

Panergy 3

Allpetro 0.2

Total 2,051,093





Important Organizations and Government Entities

For further descriptions of the listed entities, see Appendix 5: Frameworkand Stakeholders. (a) The National Energy Policy (CNPE)(b) The National Petroleum Agency (ANP)(c) Ministry of Mines and Energy (MME)(d) The Brazilian Institute of Environment and Natural Resources

- (IBAMA) and the National Environment Council (CONAMA)(e) National Agency of Waterway Transportation (ANTAQ)(f) Brazilian Navy (NAVY)(g) Directorate of Ports and Coasts (DPC)(h) Brazilian Institute of Oil, Gas and Biofuels (IBP)(i) National Organization of the Petroleum Industry (ONIP)

Brazil

State of Rio de Janeiro

Important EPC Companies and

Shipyards

An overview of the major EPC (Engineering,Procurement and Construction) companies

and shipyards in Brazil, all of them possiblecustomers for Norwegian oil, offshore andmaritime suppliers:

See also Appendix 6: Shipyards.



0

1000

2000

3000

4000

5000

6000

7000

020201591101020092008



Summary of Petrobras

Business Plan

The Petrobras business plan is updatedannually, and the market has recentlyseen a steady growth in planned invest-ments of more than 10% per annum.

The current plan, for 2011-2015, fore-sees investments at about the same levelas the 2010-2014 plan, with projectedinvestments over the next five yearsstipulated at USD 224.7 billion.

The main change from the last plan isthe increased investment in E&P, up

from 53% to 57%. This represents anincrease of USD 8.7 billion, with E&Pinvestments totaling USD 127.5 billion.

These investments will drive a stronggrowth in Petrobras’ output of oil andgas over the next 10 years. Most of theproduction growth will come from alreadyproven reserves. Getting resources, bothcapital and human, to achieve these am-bitious goals is the bottleneck for Brazilat the moment. The need for qualified

professionals is a growing concern inthis respect. In 10 years’ time Petrobrasexpects to have a production of over 6million barrels of oil equivalents per day.

With this growth, Petrobras is expected toovertake companies like ExxonMobil, BP, Shelland Chevron. And as a comparison, while the

Business Segment

Brazil and Abroad

as Production - Brazil

il Production - Brazil

as Prosuction - International

il Production - International

Brazilian oil output in June 2011 is roughlyequal to that of Norway, within the next 10years it will probably be double.

orporate

iofuels

istribution

etrochemicals

&E

ownstream

P

Corporate 1%

Biofuels 2%

Downstream 1%

Petrochemicals 2%

Natural gas, energy, gaschemicals 6%

RTC (refining, transportation,commercialization) 31%

E&P 57%

Total USD 224.7 billion

International

Brazil

International 5%

Brazil 95%

Total USD 224.7 billion

Gas Production - International

Oil Production - International

Gas Production - Brazil

Oil Production - Brazil

Pre-Salt Transfer of Rights

2,386 2,516 2,5752,772

+ 10 Post-SaltProjects

+ 8 Pre-SaltProjects

+ 1 Transfer of Rights

3,993

6,418

Petrobras Investments 2011-2015

Estimated production growth in Brazil

´ 0 0 0

b o e / d a y

4. 9 % p. Y.

Added CapacityOil2,300,000 bpd

+ 35 Systems

3 , 0

7 0

543

131,148

845

4 , 9

1 0

Accomplishment of 30 EWTs from2011 to 2015: 13 in the Pre-Salt, 7 inthe Transfer of Rights Area and 10 inthe Post-Salt.

Pre-Salt participation in the totalproduction will enchance from thecurrent 2% to 18% in 2015 and40.5% in 2020.





Petrobras Headquartersin Rio de Janeiro.

The world’s major oil producers

6000

5500

5000

4500

4000

3500

3000

2500

2000

1500

1000

500

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

2 0 1 3

2 0 1 4

2 0 1 5

2 0 1 6

2 0 1 7

2 0 1 8

2 0 1 9

2 0 2 0

Source: PFC Energy and Company reports

t h o u s a n d

b o e / d

Petrobras:3.9 MM boe/d in 2014and 6.4 MM boe/d in 2020

ExxonMobil:Production growth rate ~3-4%in 2010; ~2-3% p.y. up to 2013

BP:Production growthrate~1-2% p.y. up to 2015

Shell:~3.5 MM boe/d in 2012and ~3.7 MM boe/d in 2014

Chevron:Production growth rate ~1%p.y. between 2010-2014 and4.5% p.y.between 2014-2017





In a country where the oil, offshore andmaritime industries must compete fiercely with other sectors of the economy for scarceengineering resources, and where in addition

Critical Resources

Current

situation

Delivery Plan (to be contracted)

Accumulated Value

By 2013 By 2015 By 2020

Drilling Rigs Water Depth Above 2.000 m 5 26 31 53

Supply and Special Vessel 254 465 491 504

Production Platforms SS eFPSO 41 53 63 84

Others (Jacket and TLWP) 79 81 83 85

Supply Vessel

26 Rigs Contracted,

28 More to Be Built

by 2020, Totalling 54:

Until 2013:

13 rigs contracted before

2008 and 1 rig relocatedfrom international opera-

tions; + 12 new rigs con-

tracted in 2008, through

international bidding.

2013-2020:

Bidding in process, to

contract 28 rigs to be built

in Brazil.

Drilling Rigs

Productio Platform (FPSO)

Petrobras construction needs

the local industry is rarely competitive on theinternational market, Petrobras and Brazilare facing a huge challenge.





But in order to build and en-sure the smooth operations ofso many offshore rigs and ves-sels, there is a huge need for

sub-suppliers of products andservices of all categories. Andlocal industry is not expectedto be able to fulfill all theseneeds. See the graphs on thispage for a demand overviewfor the Brazilian offshore sector until 2015.

At the same time, the need(and opportunity) to build astrong local supplier industryis increasing, and this hasbecome a key political issue inBrazil. The politicians intend touse this unique opportunity todevelop the local industry, andhave implemented both regula-tions and incentives to increasethe local content in the Brazil-ian oil, gas and offshore indus-try (for more details, see nextpage and the Local Contentchapter on page 63).

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F(INTSOK Geographical Market:Brazil;On-Offshore:Offshore;INTSOK Category:Field Development)

C(INTSOK Market Definition)

R(Year:2005-2015)

V(EP Expenditure:USD million)

CUBEAUTO Chart

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F(INTSOK Geographical Market:Brazil;On-Offshore:Offshore;INTSOK Category:Subsea)


R(Year:2005-2015)


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S(ChartType:ColumnStacked ;Legend:Custom;GridLinesX:off;GridLinesY:off;LegendX:0;LegendY:0;Palette :Default;PaletteText:off;AxisTitleY:{u};LegendCols:1;LegendRows:3)

F(INTSOK Geographical Market:Brazil;On-Offshore:Offshore;INTSOK Category:Well)


R(Year:2005-2015)


CUBEAUTO Chart

S(ChartType:ColumnStacked ;Legend:Custom;GridLinesX:off;GridLinesY:off;LegendX:0;LegendY:0;Palette :Default;PaletteText:off;AxisTitleY:{u};MaxValue:10000)

F(INTSOK Geographical Market:Brazil;On-Offshore:Offshore;INTSOK Category:Operations)


R(Year:2005-2015)


Demand overview, the Brazilian offshore sector (source: INTSOK)

Field Development

Offshore Field Development Market by Definition – Brazil

Subsea

Subsea Market by Definition – Brazil

Well

Offshore Well Market by Definition – Brazil

Operations

Offshore Operations Market by Definition – Brazil





OGX

Besides Petrobras, the most active E &P company in Brazil right now is OGX, aBrazilian company owned by Eike Batista,Brazil’s richest person. OGX is the larg-est fully private Brazilian oil company. Their license portfolio has been growing fast, andthe company is now entering a new phase with initial production. Their ambition level isextremely high: over 1 million barrels within10 years, as shown in the below chart.

To achieve their ambitious growth targets,OGX will also require a high number ofoffshore assets. Demand for new FPSOsfor example is expected to reach 60 unitsfor Petrobras and OGX alone. It is alsoassumed that around 50% of the world’sdeep-water fleet for both FPSOs and rigs will be in Brazil over the next few years.

This of course represents many opportunitiesfor service suppliers to this segment, an area where the offering from local suppliers still ismodest and the market immature.

OGX equipment demand and production targets

1,380

730

20

CAGR 70 %

OGX Production Targets - kboepd

2011E 2015E 2019E

Base Case of 48 Offshore E & P Units Equivalent toUS$ 30 bn

ahead of schedule

st FPSO already contracted with OSX for a periodof 20 years, at an average day rate of US$ 263,000

Expected Demand of Offshore Equipment (2011 - 2019)Number of Units

FPSO

TLWP

WHP

Total

19

5

24

48

Source: OGX

Delivery Timeline

2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E

1 1 1 4 5 32 1 1

1 1

4

7

11

13

6

4

13

1

2

1

5

1

6

6

2

2

Source: OGX





The Shipbuilding Market

Benefitting from both the growingneed for rigs and ships, and thecontinued tightening of the gov-ernment’s local content initiative,the Brazilian ship building industryare currently being rebuilt and the whole sector re-energized. Manyshipyards that were flourishing inthe “golden eighties” but almostinactive in the nineties, are nowincreasing their production andpositioning themselves for theincreased demand.

See Appendix 6 Brazilian Ship-yards for an overview of the mainshipyards and their current activitylevels.

At the same time, the Braziliangovernment and Petrobras aregiving incentives to new shipyardsto be built from scratch, filling upthe order books for these so-called“Virtual Shipyards”. The most suc-cessful one so far is the Atlantico

Sul shipyard just south of Recife,already with an order book of 22tankers before the shipyard haseven been completed. Recently Atlantico Sul was also awardedthe contract to build the first 7 in atotal package of 28 drillships to beconstructed in Brazil over the nextdecade.

Still, the Brazilian shipbuildingindustry is not competitive inter-nationally, even if 10 years have

passed since the market started toimprove. This is due to various fac-tors, including lack of investments,lack of qualified labor, powerfullabor unions and a very strong localcurrency.

Without the demand brought on bylocal content we would not haveseen the level of shipbuilding andrelated activities that are takingplace in Brazil today.

Many shipyards are

now increasing their

production andpositioning

themselves for the

increased demand.




The overall minimum percentage of localcontent in a product or service is defined bythe government, and this has implicationsfor foreign suppliers entering the Brazilian

market. Being able to meet local contentquotas may in many cases be a necessity,and in other cases contribute to a competi-tive advantage.

A very brief summary of the system: Companies that win a concession to

operate an oil field must commit to anoverall local content level, on averagearound 60%, depending on product andapplication.

The local content commitment is passedon to suppliers. Percentages vary for

different types of equipment and ser-vices, but the overall local content quotamust be met.

Each level of suppliers and sub-suppli-ers must prove their local content levelthrough certificates issued by an author-ized local content certification company.

At least 10% of the product value mustbe added in Brazil for the local contentto be registered. on top of that, all valueadded in Brazil, including assembly,testing and even the sales margin can

contribute to increase the official localcontent level.

THE NEED FOR

PRODUCTION IN BRAZIL

The local content debate is heated in Brazil,and local content is a reality that all com-panies must take into consideration when

evaluating their chances in the Brazilianmarket.

For some foreign companies, with uniqueproducts, it would be possible to do businessdirectly from abroad without local content,at least in the first stages of market entry.For most companies, however, it will be anecessity to create sufficient local content toensure competiveness in the long run. Thegovernment’s stated goal is that by 2020,90% of all production should take place in

Brazil.

For more details, see Local Content, page63.

There is increasing political pressure in Brazil for as much as possible of

the production for the oil and offshore industry to be done in Brazil.


“Everything that can be

done in Brazil, shall bedone in Brazil.”

- Former Brazilian

president Lula




Innovation Norway

Innovation Norway’s International Growth

Program provides local assistance and coun-seling for establishing a company in foreignmarkets.

Services: Market consulting Practical assistance Networks with local knowledge

The companies pay 50% of InnovationNorway’s hourly costs; the remaining 50% iscovered by public funds through the Interna-

tional Growth Program.

More information:http://www2-invanor.no1.asap-asp.net/Tjenester/Programmer/Internasjonal-vekst-programmet/- (only in Norwegian)

INTSOK

INTSOK - Norwegian Oil and Gas Partners- was established by the Norwegian oil and

gas industry and the Norwegian Govern-ment. INTSOK is an effective vehicle for promoting the Norwegian offshore industry’scapabilities to key clients in the Brazilianmarket, as well as providing market informa-tion to its partners.

Services: Market entry services to INTSOK

partners free of charge at a maximumof 5 days per year per market

Market entry project for Brazil Client seminars, workshops, network

meetings, strategic advice.

More information: www.intsok.com

AVAILABLE SOURCES OF

FINANCING AND SUPPORTCompanies preparing to expand internationally should be aware of the

financing opportunities available to Norwegian companies.


GIEK – Garanti-Instituttet for

Eksport-Kreditt

Safe export: GIEK guarantees for Norwe-gian companies’ export credits on behalf ofThe Norwegian Government. With assis-tance from GIEK, exporters can offer creditor finance without bearing the entire riskthemselves. GIEK secures competitive termsfor the industry and promotes the export ofNorwegian goods and services and invest-ment abroad.

Services: GIEK offers guarantees for buyer and

supplier credit, pre-shipment, bid bondsand tenders, investments, building loansand letters of credit.

Credit insurance.

More information: http://www.giek.no/produkter/en

Nopef – the Nordic Project Fund

(“Nordisk Eksportfond”)

Nopef can finance up to 40% of the ap-

proved feasibility study costs in connection with international business set up, in theform of a loan that can be fully or partiallyconverted into a grant pending final projectreport approval.

A company is eligible for Nopef loans if thecompany: has fewer than 250 employees and a

turnover less than 50 MEUR. is operational in the Nordic countries. has experience in the same business

area as the project.

More information: http://www.nopef.com/pages/eng/financing.php



26

CONTENTS START-UP PHASE:

28 Introduction

29 Company Establishment

31 Visa Requirements

33 HR, Brazilian Employees

36 Expat Management

39 Paying Taxes

44 Accounting

46 Legal Issues

48 Petrobras Supplier Certification

52 Business Culture in Brazil



27





All administrative and operational systemsneed to be established and adjusted, thecompany needs to start paying taxes, reportto the authorities, hire and manage employ-ees, and relate to the local legal framework. At the same time, the company must buildsales and get certified as a supplier to keycustomers.

Experience shows that a common mistakeis underestimating the administrative andlegal complexity of Brazil. In many cases,

a foreign expat in a Country Manager rolecan end up spending a lot of time trying to

The first 12-24 months is the critical start-up phase where many

foreign companies get consumed by bureaucracy and complex

administrative requirements.

resolve administrative issues rather thanfocusing on the market development. Thisis especially true if proper attention has notbeen given to planning and organization dur-ing the initial phases of a new Brazilian com-pany’s life. Adding to the challenges is thefact that it is not always immediately noticed when an unfortunate or even illegal admin-istrative decision has been taken. Resultingproblems may compound, and could derailthe company’s development due to the costand time involved in restructuring systems

and updating registrations with necessaryauthorities.




COMPANY

ESTABLISHMENT


Setting up a company in Brazil can be a long

and time-consuming process. It involves anumber of steps which all need to be carriedout in the right order and with a great atten-tion to detail. Short-cuts are inadvisable, asthis is very likely to halt the whole processand create additional delays.

When the process is well managed how-ever, and foreign investors are aware of thenecessary documentation and legal require-ments, things can run relatively smoothly.

The most common way for

foreign companies to establish a

presence in Brazil is to set up a

Brazilian subsidiary.

Deciding on Company Type

Brazilian law allows for several types ofcorporate entities. Most foreign investors optfor theLimitada (Limited Liability Company- “Sociedade Limitada”). In some cases theS.A. (Joint Stock Company - “Sociedade Anônima”) is to be preferred.

Limitada (Ltda.)

The flexible decision making mechanisms,reduced bureaucracy, no audit requirements,greater confidentiality and lower operatingcosts makes this a very attractive option for small and medium sized companies. Further,there are no mandatory auditing require-ments for limitadas.

S.A.

The freely transferrable shares, more formaldecision-making process and easier accessto external financing makes this a better choice for larger companies with a morediversified shareholding. An S.A. must beaudited once a year.

For more details on these company types,see Appendix 4: Differences between Limi-tada and S.A.

3 to 4 months

is a realistic

time frame

to get a

company fully

operational.





Establishment Process

This is a brief overview of the process of es-tablishing a company in Brazil. Each step hasits own procedures and sub-steps, whichdepend on the specifics of the company.

Initial Preparations

1. Select a company name and checkavailability

2. Select an qualified attorney-in-fact torepresent each of the foreign partners,and prepare power of attorney(s)

3. Register the foreign partners with theBrazilian Central Bank

4. Apply for a notarised Norwegian certifi-

cate of incorporation5. The power of attorney and certificates

of incorporation must be authenticatedby a Norwegian public notary (“NotariusPublicus”), consularized (verified) by theBrazilian embassy in Oslo and translatedinto Portuguese by a certified translator in Brazil

6. Register the foreign partners with theBrazilian Central Bank and get the busi-ness registration number.

Legally Incorporating the Company7. Draft the company’s articles of associa-tion (“Contrato Social”) and establishthe company by public deed (Limitada)or in a general meeting of incorporation(Corporation).

8. The newly formed company can thenregister its corporate acts with the localBoard of Trade (“Junta Comercial”) inorder to obtain a company registrationnumber (“NIRE”).

9. Register for federal and state taxes, re-ceive a company tax number (“CNPJ”).

10. By completing this process, the com-pany will also be automatically registered with the National Institute of SocialSecurity (“INSS”).

11. The company will now be automaticallyregistered with the government savingsbank for social security purposes, “CaixaEconomica Federal (CEF)”, with anaccount in the Federal UnemploymentFund (“FGTS”).

12. Depending on the area of activity, thecompany might need to apply for a spe-

cific environmental or sanitary licencebefore obtaining the CNPJ.

Receiving the CNPJ marks the start of thecompany as an independent legal entity and allows it to sign contracts. However, it can still not employ people or invoice customers.

A few further steps are required to make thecompany fully operational.

Getting the Company Operational

13. Open a Brazilian bank account14. Register the paid foreign share capital

with the Central Bank15. Register the company with municipal tax

authorities16. Apply for permission to issue invoices,17. Register employees with the National

Institute of Social Security (“INSS”)

18. Register employees in the company’saccount with the Federal UnemploymentFund (“FGTS”)

19. Notify the Ministry of Labor of employ-ees

20. Register with the Patronal Union andthe Employee Union

21. Apply to the municipality for an opera-tions permit (“Alvará”).

Time Frame

When the whole process is well managedand no specific problems occur, each of thethree phases will take around 30 days. Ex-perience shows however that it rarely takesless than 4 months to get a company fullyoperational. A lot of time is often lost in thepreparation phase, and poor communicationand coordination are factors that often causedelays.

Corporate Capital Needs

There are generally no minimum corporatecapital requirements in Brazil, except for afew specific sectors.The optimal amount willtherefore depend on variables such as thetype of activity, planned investments, work-ing capital requirements, expected opera-tional cash flow and risk profile. The amountof planned imports may also be a factor asimport licences are linked to an evaluation ofcompanies’ perceived financial solidity.

Although there is no specific requirementregarding the optimal amount of corporatecapital, at least R$ 150.000 is recommend-

ed for service providers and significantlymore for industrial players depending on thenature of their activity.




ISA REQUIREMENTS


Overview

As a non-Brazilian, you need a visa to work in Brazil. These are the relevant visa types, all of them multi-entry:

Visa type Validity Description

Administrator

visa

Permanent The expat is hired to become the administrator of a Brazilian company(hereafter: “the employer”), typically a subsidiary of a foreign company.

A foreign investment must be made to the employer. There are twoinvestment options:1. BRL 150,000 (USD 93,750), with an obligation of hiring 10 Brazil-ian employees within 2 years.2. BRL 600,000 (USD 375,000), with no hiring obligation.The investment becomes part of the employer’s assets and can beused for any accountable purpose including salary for the expat.

The visa is linked to the employer for 5 years. Thereafter, the expatcan work for any company in Brazil.

Salary:- If the expat is transferred to Brazil from a company within the samecorporate group, the salary must not be lowered.- Must be the highest salary paid by the employer for the specificposition.

Visa with

work contract

2 years, renew-

able for another 2years. Can then bemade permanentif approved byauthorities.

The visa is issued based on a valid work contract with a Brazilian com-pany.

The number of foreigners must not exceed 1/3 of the total number ofemployees.

Salary:- Must not be lower than for Brazilians performing similar duties in thecompany.- If the expat is transferred to Brazil from a company within the samecorporate group, the sum of the salary and any supplement paidabroad must be equal to or larger than the last salary received beforethe transfer.- Supplements paid abroad are taxable in Brazil.

Investor visa Permanent A permanent visa can be issued to a person investing at least BRL150,000 (USD 95,000) in Brazil.

The investment plan has to be approved by the authorities. Typically, the investor establishes a small company with the investment

as working capital, and provides consultancy services invoiced throughthe new company.

Visa for

Technical

Assistance

One year, renew-able for another year

For foreigners who will provide technical assistance to a Braziliancompany.

Technical

Visa

90 days, renewablefor another 90 days

For foreigners who will provide short term technical assistance to aBrazilian company.

In addition, a foreigner may obtain a permanent residency/work permit in Brazil by marrying or having a child with aBrazilian citizen.





Is it Necessary to Apply for a Visa

for Regular Business Trips to

Brazil?

Norwegians automatically receive a 3month visitor’s visa on arrival in Brazil. Themaximum allowed stay is an accumulated6 months per 12 month period. Businessmeetings can be conducted during this time,but the visa is not intended for work activitiessuch as rendering services to clients. Also,you are not allowed to embark on offshoreinstallations with only a visitor’s visa.

IMPORTANT: On arrival in Brazil, all foreigners need to specify the purpose of the visit on the arrival form. If you don’t have a specific work visa, select “Business” and NOT “Work”.If “Work” is indicated and there is no

work visa in your passport, you are likely to be refused entry and put on a flight out of Brazil at your own expense. This actually happens quite frequently.

Obtaining a Visa

The visa process involves a substantialamount of forms and attestations, as well asextensive interaction with relevant authori-ties. It is highly recommended to let a spe-cialized company handle the visa process.

How Long Does it Take?

The Ministry of Labor processes a work visain 30-60 days after all the correct docu-mentation has been submitted, but becauseof the other work involved (see below), arealistic time frame is 3-4 months for the

whole process.

How Much Does it Cost?

A specialized company will charge aroundUSD 2,000 per visa for the visa types listedin this chapter, except for the 90 Day Tech-nical Visa which should cost around USD700. In addition, consular processing feesamount to around USD 500.

Brief Overview of the Visa Process

1. Necessary forms and attestationsmust be filled in according to therequirements, which vary betweenthe different visa types. Non-Braziliandocuments generally include have tobe notarized at a public notary officein the country of origin, and then veri-fied at the Brazilian Embassy in thesame country.

2. All documents are sent to Brazil, where they have to be translated toPortuguese by a state authorizedtranslator.

3. Visa documents are submitted to theMinistry of Labor, which has a pro-cessing time of around 2 months.

4. If the application is successful, thevisa will be sent to any Braziliandiplomatic station outside of Brazil,at your choice, where the visa willbe available for 180 days. The visacan not be collected in Brazil. Whencollecting the visa, it is necessary topresent an English official transcript

of your criminal record no older than90 days, issued by the police of your home country.

5. When the visa has been collected, thevisa holder must travel to Brazil within90 days.

6. Within 30 days after arrival in Brazil,the visa holder must report to thefederal police (“Policia Federal”) for registration.

7. For permanent visa holders, the Poli-cia Federal will issue an ID card withthe RNE (National Registry of For-eigners) number. This takes another 6months. In the meantime, a stampedpaper slip called “Protocolo” with aphoto of the visa holder is issued asa temporary proof of the visa status.The Protocolo or RNE card must bepresented together with the passport when entering Brazil.





As the company grows, there will inevitably be a need for employing

and managing Brazilian staff. Brazilian labor laws provide a detailed

and rigid framework for the management of employees.

Overview

Brazilian employees enjoy very good pro-tection by the laws. It is not uncommon for former employees to sue their ex-employer,especially if unlawful demission can beclaimed. This type of cases can be time-consuming, and the verdict almost always is

in the former employee’s favor. Therefore,special care has to be taken 1) when evalu-ating candidates to hire, and 2) to make surethat all labor regulations are strictly adheredto, to avoid grounds for lawsuits.

Salaries and Employee Costs

Basic administrative staff is less costly inBrazil than in Norway. Specialized person-nel like engineers and managers will matchor even exceed Norwegian salary levels,especially if the employee is proficient inEnglish (less than 10% of the population

speaks English.) The social costs levied bythe government for each employee amountto approximately 80% of the gross salary.Considering other common benefits, includ-ing meal tickets, transportation allowancesand private pension plans the total cost of anemployee is around 2x the gross salary.

Below is an overview of typical salary rangesfor some professions in Brazil. The figuresare gross salaries. To find the cost of em-ployment, each figure has to be multiplied by

2 (approximately) to find the total cost to thecompany.

HR, BRAZILIAN

EMPLOYEES





Non-mandatory, but common benefits(cost pr. month pr. employee): Health and dental insurance: USD 150

- 500. Life insurance: USD 35 - 70. Private pension plan: 4% - 8% of salary. Lunch: USD 250 - 650.

Managing the Employees

See “Appendix 2: Labor Law” for more de-tails on HR regulations. Some highlights: Work hours: Maximum 8 hours per day

and 44 hours per week. Entitlements: Christmas bonus (equal

to one month’s salary), vacation bonus(equal to 1/3 of one month’s salary).

Vacation: 22 work days after each12-month working period. No vacationentitlement during the first 12 months ofemployment.

Maternity leave: 120 days, extendableto 180. Paternity leave: 5 days.

Minimum salary: BRL 580 (ca USD380) pr month, adjusted annually.

Position Comment Required Min.

Experience

Monthly Salary

(USD)

Receptionist A receptionist is only expected to answer thephone and receive visitors, and has a low de-gree of autonomy.

None 650 - 1,100

Executive

Secretary

Experience shows that many start-ups need anexecutive secretary rather than just a recep-tionist. An executive secretary writes letters,memos, takes care of reservations and travelitineraries etc, in addition to receptionist tasks.This is normally a person with some level ofhigher education.

1-2 years 1,900 - 2,500

Sales Assistant 2 years Ca 4,000

Financial Manager 5-10 years Ca 6,500Sales Manager 5-10 years Ca 7,500

General Manager 10-15 years 12,000 - 15,000

Engineer For offshore work, up to 88% is added to thefixed salary, depending on the salary regimechosen. It is advisable to consult with a com-pany with specific offshore payroll knowledgebefore deciding on the salary regime.

Recent universitygraduate

3,500 - 5,000

1-5 years 3,500 - 7,500(incl. offshoresupplement)

5-10 years 7,500 - 11,000(incl. offshore

supplement)

Engineer

with oil/gas

management

experience

Project manager role 5 years Ca 9,500

Branch manager role 10 years Ca 14,000

15 years Ca 17,000 -19,000

...the total cost of an employee is

around 2x the gross salary.

Salary ranges for some Brazilian employee categories.





Terminating a Contract

Individual agreements may be terminatedupon lapse of the determined period or bynotice from either Company or the em-ployee.

In the event of termination, the employee isentitled to receive (a) the balance of his or her pay, (b) the corresponding payment for vacations not taken, and (c) a proportionalamount of the Christmas bonus equivalent to

the number of months he or she has workedduring the calendar year.

In the event fixed-term agreements areterminated without cause, the terminatingparty must pay damages in the amount offorty percent (40%) of the compensationestablished for the remaining term of theagreement. In the case of contracts with anindefinite term, the terminating party mustgive prior notice of at least thirty (30) days.

The employee who registers as a candidate

for a position of union leader or representa-tive may not be dismissed as of the date ofsaid registration until one year after termina-tion of the term of office, even if electedas alternate, unless the employee commitsa serious fault under the terms of the law.Other employees who have attained a tem-porary employment stability set forth either by law or by collective bargaining agreement,such as expectant mothers and employeesthat have been away from work due to workaccident, may not be dismissed either.

Alternatives to Hiring

Independent Individual Service

Providers

Many mid to high level managers in small/medium sized companies prefer to invoicefor their time as independent service provid-ers, rather than being an employee of thecompany. In practice, this setup is flexibleand easy to manage. The manager generally works full time for the company, and invoicesthrough his/her own small service company.

Benefits: For the hiring company: no social costs

on top of the salary, easy to manage.

For the manager: lower tax, more flex-ibility.

Drawbacks: For the hiring company: Higher risk,

as the manager may in some casesretroactively claim de facto employeestatus and benefits based on tasks and work hours.

For the manager: Lower job security,loss of social benefits and pension/health plans available to regular employ-

ees.

Outsourcing of Functions

Some functions, like accounting services,are commonly outsourced to individual com-panies. But it can also be very worthwhileto consider outsourcing administrative andback-office functions like payroll, HR, finan-cial and tax management. In this case it isnecessary to be able to follow up and evalu-ate the quality of the outsourced services, which can vary considerably.

Benefits: Do not have to build in-house capacity. Frees up time for managing operational

issues. Leaner organization.

Drawbacks: Quality may vary considerably between

suppliers, so a thorough backgroundcheck is necessary.

Higher probability of communication andcoordination problems.





Salaries and Employee Costs

Based on benefit policy and the expat’s fam-ily situation, the total annual cost per expatnormally is in the USD 350,000 - 700,000(NOK 2 - 4 million) range. It is customary tocover all living expenses in the expat’s salarypackage.

Housing costs are calculated for a familyliving in the Ipanema/Leblon area in Rio de Janeiro, which receives the great majority offoreign expats in Rio. Nearby, recommend-able neighborhoods will have slightly lower housing costs.

EXPAT MANAGEMENT

Cost Items Comment Annual Cost

(NOK)

Salary It is common to offer a full Norwegian salary with anadditional 50% to compensate for being expatriated.Social cost is 80% of the salary.

1.5 - 2.5 million

Car/Benefits 100,000

Family Re-

lated Costs

Income compen-sation for spouse

It is customary to compensate for the lost incomeof the spouse, as a spouse is generally only grantedresidency and not a work visa. The Norwegian Ministryof Foreign Affairs (MFA) suggests an additional NOK 210,000 for the accompanying spouse.

210,000

Living expensesper child

Rate suggested by the Norwegian MFA 56,000

Tuition per child Rate suggested by the Norwegian MFA 130,000

Home travel 2 trips per year for the family 50,000

Housing

Costs

(Ipanema/

Leblon)

Apartment hotel 1-2 bedrooms, not luxury, small kitchen and cleaningincluded: ca NOK 30,000 - 35,000 per month

360,000-420,000

Apartment 3-4 bedrooms, Decent standard, reasonable location:NOK 35,000 - 40,000 per month

420,000 -480,000

3-4 bedrooms, OK standard, better located: NOK 40,000 - 50,000 per month

480,000 -600,000

3-4 bedrooms, recently renovated, new, good location(typical executive apartment): NOK 60,000 - 70,000per month

720,000 -840,000

Gas, electricity,internet

Ca NOK 2,000 per month 24,000

Expat costs





Practical Tips for New Expats

in Brazil

Social Security Number and

Identification

The Brazilian equivalent of a social securitynumber is in fact two numbers, both of themnecessary in order to live and work in Brazil,see table below:

ID Needed For Comment How To Get It Cost Time Frame

CPF

(Registry

of

Persons)

Almost all transactionsand official purposes.

Required for anyone with a formal connec-tion to Brazil, also for non-residents.

The process is initiatedat a post office or inany filial of Banco doBrasil, and requires afollow-up visit to themunicipal tax authori-ties.

AboutBRL 15.

About 2 weeks.

RNE

(National

Registry

of For-

eigners)

Activities only availableto residents, such assigning of contracts,public health services

etc.

The official BrazilianID card for foreigners, which proves Brazil-ian residency. Issued

to foreigners with aqualifying visa.

The RNE number isissued by the federalpolice when the visais presented to them

after arrival. (See 2.3Visa Requirements.)

Includedin costof visa.

Issuance ofRNE number:10 days.The physical

ID card: 6months.

Visa for Spouse and Children

An expat’s spouse and children are includedin the expat’s visa. The spouse generallygets a residence permit only, and is NOT

allowed to work in Brazil.

Finding an Apartment

Apartment prices are high in Brazil (seeExpat Management, previous page.) Find-ing a good apartment is time consuming,and could easily take a month or two. Thegeneral standard is lower than in Norway, which often makes it necessary to see a lotof apartments to find a nice one.

In Rio de Janeiro, virtually all expats are living

in the Zona Sul area, with the great major-ity in the Ipanema or Leblon neighborhoods.There are many real estate agents in ZonaSul which can assist in finding an apart-ment. The website www.zap.com.br andthe Sunday edition of the Globo newspaper have comprehensive listings of apartmentsfor rent.

In São Paulo, good areas include Jardinsand adjacent neighborhoods, as well as Mo-rumbi and a few other areas. The São Paulotraffic is congested, so it is generally a goodidea to live close to the office.

Standard rental contract length in Brazil is36 months, with the possibility of moving outafter 12 months without extra costs. Movingout before 12 months generally incurs a fineof up to 3 months’ rent.

...the total annual

cost per expat

is normally NOK

2-4 million.

Social Security Number and Identification





Security

It is easy to get a negative impression ofthe security situation in Brazil through newsreports. But in general, working and living in

Rio de Janeiro or São Paulo is unproblem-atic, as long as some basic common senseprecautions are taken, such as avoiding poor areas at night. The security situation in Riode Janeiro has in fact improved a lot over thepast few years.

Opening a Bank Account

Opening a Brazilian bank account in generalrequires residency status, as well as proof ofphysical residence (such as a gas bill in your name). Recommended banks for foreigners

include Itau and Bradesco, or internationalbanks such as Citibank.

Signing Contracts

All contract signing usually requires that your signature is verified and countersigned bya public notary office. Your signature needsto be registered at the public notary officebeforehand.

The Norwegian driving

licence is valid in Brazil

for resident Norwegians.

Vaccines, Health Services,

Insurance

There is no requirement for specificvaccines for travellers to Brazil, but the

Hepatitis A vaccine is recommended bythe Norwegian Institute of Public Health(Folkehelseinstituttet, www.fhi.no).

Most expats buy private medical insur-ance in the form of a health plan (“planode saude”, usually included in the salarypackage). The cost is normally in the USD150-500 range, depending on benefits.

Certificate and Driving

Traffic in Brazilian cities can be dense, but

otherwise not too difficult to navigate for aNorwegian driver. The Norwegian drivinglicence is valid in Brazil for resident Norwe-gians. It is advisable to also carry an author-ized translation in Portuguese of the drivinglicence, to make possible encounters withthe traffic police easier. Barring languageproblems, encounters with the police do notrepresent a problem for expats in Brazil.





PAYING TAXESBrazil has one of the world’s most complex tax

systems. In the World Bank’s annual “Ease of

Doing Business” index, Brazil’s 2011 ranking for

“Paying Taxes” is number 152 out of 187 tracked

economies.

Corporate Taxes

Corporate taxes levied on a Brazilian

company are:

Direct taxes:

Around 34% of income for most busi-nesses, but the calculation of taxableincome depends on the tax regime (seebelow).

VAT:

There is no uniform Value Added Tax(VAT) in Brazil, but rather a range of in-direct taxes, depending on the nature of

the product or service. These taxes arelevied when purchasing, creating a taxcredit which is deductible when resellingthe product/service.

Service tax:

Levied on services not covered by theVAT type taxes. Generally 5% of invoicevalue. Does not create tax credit.

Other taxes:

A whole range of taxes, including socialcosts for employees, property taxes,vehicle taxes, credit operation tax, etcetc. Not treated in detail in this guide.





Tax Type Tax

Name

Description Tax Au-

thority

%

Direct taxes IRPJ Corporate Income Tax Federal 15% on all annual taxable income upto BRL 240,000

25% on any annual taxable incomeabove BRL 240,000

CSLL Social Contribution on NetProfits

Federal 9% on all taxable income

Taxes similar

to VAT

IPI Excise Tax, levied on the salesvalue of imported or manufac-tured goods.

Federal 0-30%, depending on product. A fewproducts (like cigarettes) can be taxedat up to 300%

PIS/COFINS

Social Integration Programme(PIS) and Contribution for Social Security Funding (CO-FINS), levied on total invoiced

value.

Federal For companies on the “Actual Profit”tax regime: PIS=1.65%,

COFINS=7.6%

For companies on the “Presumed

Profit” and “Simples” tax regimes:PIS=0.65%, COFINS=3% (no taxcredits)

ICMS State Value Added Tax, leviedon the import and domesticcirculation of goods, and oncertain services such as tele-communications, electricity,and inter-municipal transporta-tion.

State Goods, circulation within the samestate: 18-19%

Applicable services: 25-30%, exceptfor inter-municipal transport: 12%

Circulation between states: 12% for goods originating in the South andSoutheast, 7% for the rest of thecountry.

Service tax ISS Service tax levied on grosstransaction value of mostservices with the exception ofthose covered by the ICMS.The ISS is a cumulative tax where credits are not deduct-ible. Exports of services (ser-vices sold to foreign entities)are in principle exempt of ISS.

Municipal 5% in Rio de Janeiro and São Paulo(some specific services such as healthcare are taxed at 2%).

Overview of Main Taxes





Calculating Taxable Income

There are three available tax regimes, eachcalculating taxable income in a different way.

Tax Regime Taxable Income = Comment A Good

Choice For…

Actual Profit

(“Lucro Real”)

Total gross revenuesminus all deductible ex-penses, similar to mostEuropean countries.

Advantage: A period’s net loss can be carried forward to

reduce next period’s taxable income*.

Medium andlarge sizedcompanies.

PresumedProfit (“Lucro

Presumido”)

A fixed percentage ofgross revenues:Most services:

32% (16% if an-nual revenue < BRL120,000.)

Commerce andindustry: 10% (aver-age).

Advantages:Easier to manage than Actual Profit.Lower PIS/COFINS tax rates than Actual Profit.Disadvantage:No carrying forward of losses

Small compa-nies with higher profits than thepercentagethresholds.

Simplified

(“Simples

Nacional”)

4-18% of gross rev-enues depending on

activity type and annualturnover.

Advantages: As easy to manage as Actual Profit, with lower

tax rates.Disadvantages:Only for companies with lower annual revenues

than BRL 2,400,000.Not available for consultancy companies, import-

ers and a range of other company types.No carrying forward of losses.

Qualifying com-panies with an-

nual revenuesless than BRL2,400,000.

*) Tax losses can in principle be carried forward indefinitely. However, previous tax losses can only offset up to 30% of the profit of any given tax period (3 months or one year depending in setup). Furthermore, non-operating tax losses can only be offset against non-operating profits. Any tax losses carried forward will be lost if the company changes control and business activity at the same time. In mergers and acquisitions, tax lossescarried forward from one company cannot be offset against the profits of the other.

The definition of tax regime is made atthe beginning of each year, depending onvarious factors, and is valid for one year at a time. The optimal tax regime for each

company depends on type of activity, annualturnover and expected profit margins.





Tax on Dividends

0%. Brazil does not levy any taxes, includ-ing income tax, on dividends taken out of acompany by its owners.

Norwegian tax implications if the dividend istransferred to Norway: For companies: No tax is applied in

Norway. For individuals: Treated as income if the

individual is a tax resident in Norway.

Tax on Capital Gains

Companies: Capital gains are added to theregular income and taxed as such.

Individuals: 15% tax on capital gains, exceptfor dividend income from local companies, which is tax exempt.

Tax Implications if Invoicing from

Abroad

In general, 25% tax (15% withholding tax+10% “CIDE” tax) is levied on payments froma Brazilian source to a non-Brazilian entity or resident, see table below:

Individual Income Tax for Expats

IIn Which Country Will You Pay

Taxes?

Norway and Brazil have agreed on a taxtreaty which determines where residentsshall pay taxes on each type of income. Theaim is to avoid double taxation.

Expatriates are considered Brazilian taxresidents and are therefore taxable in Brazil when: Entering Brazil with a permanent visa, or

a temporary visa based on a local workcontract.

Spending at least 183 days in Brazil,

consecutive or not, in any 12-monthperiod with a temporary visa not basedon a local work contract.

Implications: A Norwegian resident receiving a salary for work done in Brazil for an aggregate period of more than 183 days in any fiscal year shall only pay income tax on those revenuesin Brazil.

Any income earned in Norway for work

carried out in Norway during the same year shall on the other hand be taxed in Norway.

The individual situation of an expat movingto Brazil will, however, have an individualimpact on tax and social security contribu-tions. Detailed planning is necessary to avoidadditional tax and social security costs.

Tax Description Tax Authority %

Withholding tax Levied on all income earned by a non-resident from a Brazilian source, includingroyalties, technical assistance, technicaland administrative services, interest pay-ments and capital gains.

Federal 15% (25% if therecipient is situated in atax haven as listed bythe Internal RevenueService).

CIDE Economic Intervention Contribution, leviedon all royalties, technical assistance, tech-nical and administrative services, tech-nology transfer and technology licenseagreements paid from a Brazilian sourceto a non-resident.

Federal 10%

Norwegian residents generally pay

income tax in Brazil and not in Norway

on salary for work performed in Brazil.

Tax implications if invoicing from abroad





Individual Income Tax for Expats

Brazilian income tax follows a progressivescale, where a yearly income of above BRL42,984 is taxed at a rate of 27.5%. All

expats generally fall into this bracket.

Overview of the progressive Brazilian incometax levels:

Annual Income (BRL) %

1 - 17,208 -

17,209 - 25,800 7.5

25,801 - 34,392 15

34,393 - 42,984 22.5

over 42,984 27.5

Special Tax Deduction Programs

Some states and municipalities offer taxdeductions for companies established within

their borders, based on the nature of thebusiness. Typically, states offer a few per-centage points off of the ICMS tax. A caseby case analysis is necessary to evaluate theimpact for any given company.

Personal income tax in Brazil





Brazilian Law is very specific

when it comes to taxes and

accounting. Normally, the

accounting function is out-

sourced to an accounting firm,

which also calculates taxes

and pays them on time.

All companies must use a licensed account-ant to prepare and sign the accounts, either

an employee or a professional accountingfirm. For a list of the various accounting re-ports required, see Appendix 5: Accountingand Financial Reports.

When the accounting function is outsourcedto an accountancy company, it is necessaryto double-check the accountant’s numbersagainst the balance sheet to verify complete-ness and correctness.

Brazilian Accounting and

Financial Terminology

Brazilian GAAP vs. Brazilian tax

accounting

Although Brazilian GAAP (Generally Ac-cepted Accounting Principles) and IFRS(International Financial reporting Standards)are virtually identical, this does not makelife any easier for foreign investors in theBrazilian offshore and maritime sectors. Thereason is that most small and medium sizedcompanies in Brazil do not prepare their ac-counts according to Brazilian GAAP. Instead,they follow the fiscal accounting standards which can differ significantly from the actualfinancial figures.

The most important difference between thetwo standards is due to accruals. Braziliantax accounting standards only allows youto book income and expenses based onvalid tax documents. According to the samestandards you are therefore not allowed toaccrue earned income or incurred expenses

ACCOUNTINGunless you have actually issued or receivedan invoice (“Nota Fiscal”), pay slips, or other similar documents.

“Fatura” and “Nota Fiscal” – Which

One Is the Invoice?

In Brazil, what is commonly referred to as a“Fatura” is a type of pro-forma invoice whichsets out the main terms and conditions of abusiness transaction, but is not a valid docu-ment for Brazilian tax accounting purposes.

However, “Fatura” is often translated intoEnglish as “Invoice” which can sometimeslead to misunderstandings.

A Brazilian invoice is called a “Nota Fiscal”and needs to comply with strict criteria setout by the tax authorities. All indirect taxesmust be calculated and included in the NotaFiscal. To be able to issue a Nota Fiscal,each company must first apply to the taxauthorities. When a Nota Fiscal is issued toa consumer, simplified criteria apply.

When suppliers are unable to issue a Brazil-ian Nota Fiscal (for example if the supplier is a foreign company or an individual), theBrazilian client must prepare an incomingNota Fiscal on their supplier’s behalf. Be-cause issuing a Nota Fiscal triggers payableindirect taxes on the part of the vendor, aNota Fiscal is usually created only once thetransaction has taken place.

Accounting of Revenue

In Brazil, revenues are not accounted for in the same way as in Norway or other countries with similar GAAP. In Brazilian taxaccounts, sales are booked at gross values with indirect taxes registered as contra-revenue accounts. This has also influencedthe way most Brazilians think of revenues.When company revenues are referred to,the amounts are usually presented to ingross terms. This can often be confusing toprofessionals used to international account-ing principles.





Audits

Audit requirements depend on company

type: For a Limitada (Ltda.), typically smalland medium sized businesses, auditingis voluntary and optional.

For an S.A., typically larger companies,annual audits are mandatory.

See also Deciding on Company Type, page29.

The four big worldwide auditing companies,Ernst and Young, KPMG, Deloitte and PWC

are all present in the Brazilian market and of-

fer these services. There are also a number of Brazilian options.

In Brazil, the auditing standards are setby the Federal Accounting Council (CFC)and the Institute of Independent Auditorsof Brazil (IBRACON). Brazilian accountingpractices tend more and more to follow theinternational Standards on Auditing (ISAs)issued by the International Auditing and As-surance Standards Board, but some smalldifferences prevail.





For specific legal deliberations, and of

course if the company is in a legal dispute,the assistance of a competent lawyer is nec-essary. But for regular day-to-day businessproceedings, there is normally little need toinvolve the services of lawyers.

Many law firms offer services includingcompany administration, tax payments etc.Experience shows that it is usually not agood idea for a company to use a law firmfor this. A lawyer will know a lot about thelegal framework, but not so much aboutactually running a company. Law companiesmay for various reasons not the best suitedfor driving the necessary processes forward.

LEGAL ISSUESBrazil’s legal framework is complex. Frequent changes

in legislation and regulations make for a less consistent

long-term planning perspective. The legal system is

overburdened and ripe for reform – it is not uncommon

that a court process can drag on for 15 years or more.





Legal Assistance

For specific legal deliberations, and ofcourse if the company is in a legal dispute,the assistance of a competent lawyer is necessary. But for regular day-to-daybusiness proceedings, there is normally littleneed to involve the services of lawyers.

Many law firms offer services includingcompany administration, tax payments etc.Experience shows that it is usually not agood idea for a company to use a law firmfor this. A lawyer will know a lot about thelegal framework, but not so much aboutactually running a company. Law companiesmay for various reasons not be the bestsuited for driving the necessary processesforward.

Contract Issues

Contracts tend to be simple, as the Brazilianlaw provides a set of rules and requirements which need to be complied with and are en-forceable by force of law, whether providedin the contract or not.

Main contract principles:

Payments must be specified in Brazil-ian currency. There is the possibility,though, to provide payment in Brazil-ian currency in amounts equivalent todetermined amounts defined in foreigncurrencies.

Governing law: In domestic contracts,the governing law is always Brazil’s.However, in international contracts theparties may choose the applicable law ofthe country deemed most appropriate. Ifthe contract does not specify applicablelaw, the Brazilian Law provides that theapplicable law for that contract is that ofthe place of its execution.

Arbitration: The parties may choose theplace and rules of the arbitration freely,provided that it does not breach good

customs and public order.

Contract language can be any, as longas the contract is translated into Portu-guese by an authorized translator andregistered at the Registry of Titles andDocuments.

Generally, the signature of two witness-es is required.

There are provisions in the law for per-forming a judicial revision of the contractif it becomes disproportionate in relationto the one originally agreed upon, caus-ing a contractual unbalance between theparties’ obligations. But this could be aquite time consuming process.

Property Law

Buying a property in Brazil is a timeconsuming process, and the administrationof properties is complex. Each case dependson factors related to the specific property,and it is therefore not possible to cover allpossible issues in this guide. But a fewpieces of advice are important for foreigners

considering buying a property in Brazil:

Do NOT buy a property unless theseller is able to provide the title deed(“Escritura”). Seek competent adviceon whether the deed has been properlyregistered with the authorities.

Do proper background checks on anypending tax and other issues regardingthe property. You will need assistancefor this, as it involves collectinginformation from a wide range of

institutions and registries. Some properties have limitations on what the property can be used for, dueto environmental or other restrictions.This needs to be verified with theauthorities before you make anyconstruction plans.





Overview

Norwegian suppliers will also find a substan-tial potential market with other companiesthan Petrobras, notably operators, EPCcompanies and shipyards (see 1.3 MarketOverview).

In general terms, sales development in

Brazil is very much about being present andbuilding a network. It is extremely difficultto build sales in Brazil without maintaining alocal presence and being able to follow upcontinuously.

Supplying to Petrobras

All suppliers to Petrobras must obtain aCRCC - Registered Supplier Certification(CRCC = Certificado de Registro e Classifi-cação Cadastral). This is relatively straight-forward, but will take from 3-6 months.

It is a great advantage to be listed in thePetrobras Master Vendor List Offshore or Onshore (MVLO/MVLOn, hereafter only

PETROBRAS SUPPLIER

CERTIFICATIONThe main purchaser in the Brazilian oil/offshore

sector is Petrobras, accounting for about 75% of all

purchases. To become a Petrobras supplier is a long

and bureaucratic process, as detailed below. To become

a supplier to other Brazilian companies is substantially

quicker and easier.

called MVLO). Suppliers in the list are auto-matically qualified for inclusion in the vendor lists of Petrobras projects, and receiverequests for quotation. Vendors not includedin the list can also be qualified as suppliersfor specific projects at Petrobras’ discre-tion, especially if they have new or uniquetechnology that Petrobras is interested in.But the safest route is to obtain the general

qualification that an MVLO listing represents.

The process of being included in the MVLOcan take more than a year, and requiresapproval by various technical committeesand even company visits by Petrobras at thesupplier’s production facilities.

This means that it could take up to twoyears from the start of the process untilthe supplier is able to participate in Petro-bras tenders. Fortunately, for suppliers withtechnology that Petrobras deems interest-ing, the relevant technical committee withinPetrobras can pull the supplier through theprocess a lot faster.

CRCC + MVLO timeline:

CRCC phase 1 CRCC phase 2 Master Vendor List Offshore

Up to 2 months Up to 4 months 2 - 12 months





CRCC – Registration as a Certified

Petrobras Supplier

CRCC Phase 1 is the initial registrationprocess, where the major input from the

company is:

Power of Attorney. The company needsto designate a legal representative inBrazil who can sign on behalf of thecompany on CRCC related documents.

Commitment Letter. This is a formalletter to Petrobras guaranteeing that thecompany will not pull out of the CRCCprocess once it has started.

Certificate of Registration – proving thatthe company is a legal entity in its home

country, and that the person signing thePower of Attorney has the right to signon behalf of the company.

General info about the company.

In CRCC Phase 2, Petrobras will issue a listof needed documentation based on their analysis of Phase 1. This list varies fromcase to case, but will typically contain:

All certifications Detailed technical specifications of the

products Recommendation letters from main

clients Financial information Management and HSE information.

Company Access to“Portal do Cadastro” at www.petrobras.com.br

First PhaseQuestionnare

Petrobras Analysis

Second PhaseQuestionnare

Petrobras Approval

Company Registrationin SAP Petrobras

Registration Certificate sent to Company

Information: Identification Contact Information Scope of Supply Local Representative Formal Request Letter

Requirements:Technical InformationLegal DocumentsEconomics (Balance

Sheet)Management Health, Safety & Environ-

ment

General overview of the steps involved in obtaining the Petrobras CRCC certificate (registered supplier). Source: Petrobras.





MVLO – Petrobras Master Vendor

List (Offshore or Onshore)

General regulations: The company must, as a general princi-

ple, have a valid CRCC registration (seesection 5) before the MVLO processcan start.

A company without CRCC can also beincluded in the MVLO list at Petrobras’discretion, if the company has a productor service that Petrobras wants to in-clude in time for a specific project.

Coordinator of Relevant Technical Committee

solicits documents, schedulesvisits/meetings with supplier


convokes the authorizing organs

Conclusive Analysis?


prepares report

General overview of the steps involved in getting listed inthe Petrobras Master Vendor List (Offshore and Onshore).

Based on the MVLO, en Vendor List ofqualified supplier is elaborated for eachproject.

As mentioned, for suppliers with tech-nology that Petrobras deems interesting,the relevant technical committee withinPetrobras can pull the supplier throughthe process a lot faster, down to just afew months.

The MVLO process can take from 6 to 18months, depending on the complexity ofthe product and the timely submission andfollow-up by the supplier of documentation

and information needed by Petrobras.

Companies with CRCC:Request via Materials

E & P Manager and Coordinator

evaluate

Technical Management analyzes

Companies without CRCC:Request via E & P, cenpes,

engineering or relevant business unit

E & P Manager AnalyzesSends to Materials and Tecnical

Management

Materialsdoes a background check

of the supplier

General Management Committee

analyzes

Materialsnotifies the supplier, updates

the database, and informs theMVLO Committee

Start 1 Start 2

Finish

Yes

No





It is very difficult to

build sales in Brazil

without maintaining

a local presence and

being able to follow

up continuously.





Brazilian business

communication is easy-going,

informal and friendly. This fits

well with the Norwegian style of

communication, and makes it

easy for Norwegians to connect

with Brazilian counterparts at a

personal level and quickly buildgood relations. At the same time,

this represents the greatest

difficulty in the communication

between Norwegians and

Brazilians.

Overview

The easiness of connecting hides the factthat Norwegians and Brazilians bring verydifferent mindsets to the table (see GlobalCultural Types, page 54.)

The result of mismanaged cultural differ-ences is frustrations and mistrust, as well astime and money lost.

Typical Issues

Building Trust Takes a Long Time After positive initial meetings, Norwegians will assume quick development of the part-nership. Brazilians need considerably moretime to build sufficient trust to be able tomove forward. The Norwegians believe thatthe partnership is making good progress,and are waiting for a breakthrough.

At the same time, the Brazilians may not yetsee themselves as fully committed, and arenot investing sufficient time/resources in the

project. Time passes, and the Norwegiansgrow increasingly frustrated because nothingseems to happen.

BUSINESS CULTURE

IN BRAZIL





Relationships Are Crucial

It is never only about business, there isalways a personal part. It is crucial to investin a long-term relationship.

Organizational hierarchy can be complicatedby political alliances and relationships. It isimportant to find out who the real decisionmaker is.

Higher Power Distance

Norwegians tend to minimize the hierarchi-cal power distance between managers andsubordinates (“the boss is one of the guys”).

Brazilians tend to maximize the distance

(“the boss’ word is law”).

You Will Not Receive Bad News

Brazilians are in general very reluctant totransmit bad or negative news. This maystem from a deep-rooted unwillingness tooffend other people. (Brazilians are emotion-ally driven, and instinctively know that if theother part is offended, the interaction will notbe constructive.)

Good news are often further exaggerated, whereas bad news can be omitted or pre-sented as at least neutral.

Opinion Can Be Stated as Facts

A general aspect of the Brazilian way of in-teracting that takes some time getting usedto for non-Latin foreigners, is that an opinion will often be stated as a fact. A statementlike “Action X is performed like this” mayoften better be understood as “I am fairlycertain action X should be performed likethis”. A Brazilian would understand theinherent uncertainty and investigate further

if necessary. A Norwegian would understandthe statement as a verified fact, which maynot be the case. Low Tolerance for Uncertainty

Maybe contrary to what one would expect,Brazilians have a lower tolerance for uncer-tainty than Norwegians. This means thatin general, Brazilians are more comfortable when authority, responsibilities and tasks arevery clearly defined. This is also reflectedin Brazilian regulations, which often aim to

cover every possible scenario, sometimesresulting in overly detailed, rigid and inflexibleprocedures.

Fewer Independent Initiatives

Brazilians at lower levels are generally less willing than Norwegians to take an inde-pendent initiative or do a task not explicitly

assigned by their supervisor. This does notimply lower work ethics, as Brazilians arehardworking and dedicated.

But in the Brazilian business culture, it isoften less risky for an employee to follow asupervisor’s exact instructions, even if clearlyfaulty, than to question the supervisor’sauthority by raising doubts about the instruc-tions or suggest other ways of doing a task.

Emotions

Brazilians are in general much more drivenby emotions than Norwegians, and emotionsare displayed. This often increases the levelof enthusiasm and energy. But Norwegiansmust take care to express themselves morediplomatically than they might do in Norway,especially when giving negative feedbackon something. What is considered a direct,constructive and factual feedback in Norwayis more likely to be taken personally in Brazil,and may therefore more easily offend anemployee.

Corruption

There is no doubt that corruption exists inBrazil at various levels of public administra-tion. But it is perfectly possible to run a busi-ness in Brazil without having to pay any bribe

whatsoever. (See also Risks, page 11).

The easiness of connecting hides the

fact that Norwegians and Brazilians bring

very different mindsets to the table.

Mark William Penny / Shutterstock.com





Global Cultural Types

According to sociologist RichardLewis’ acknowledged theories oncultural differences, the world can bedivided into three main cultural types: Linear-active: Western Europe,

North America Multi-active: Southern Europe,

South America, Africa, Arabcountries.

Reactive: Asia.

CORTEOUS,AMIABLE,

ACCOMODATING,COMPROMISERS,GOOD LISTENERS

COOL,FACTUAL,DECISIVE

PLANNERS

WARM,EMOTIONAL,TALKATIVE,IMPULSIVE

Brazil, ChileHispanic America, Argentina, Mexico

Italy, Portugal, Spain,Greece, Malta, Cyprus

Russia, Slovakia, Croatia

France, Poland,Hungary, Lithuania

Belgium, Israel

Australia, Denmark,Ireland

USA

UK Sweden,Latvia

Finland,Estonia Canada

Sub-Saharan Africa

Saudi Arabia, Arab countries

Bulgaria, Turkey, Iran

India

MULTI-ACTIVE

LINEAR-ACTIVE REACTIVE

China

Singapore Taiwan,Hong Kong

JapanGermany,Switzerland,Luxembourg

Vietnam

Indonesia, Malaysia,Philippines

Korea, Thailand Austria, Czech Republic,Netherlands, Norway, Slovenia

Alexandru Cristian Ciobanu / Shutterstock.com





LINEAR-ACTIVE

Talks half the timeGets data from stats, research

Plans ahead step by stepPolite but directPartly conceals feelingsConfronts with logicDislikes losing faceCompartmentalizes projectsRarely interrupts Job-orientedSticks to the factsTruth before diplomacySometimes impatientLimited body languageRespects officialdom

Separates the social & professionalDoes one thing at a timePunctuality very important

MULTI-ACTIVE

Talks most of the timeSolicits first-hand info from people

Plans grand outline onlyEmotionalDisplays feelingsConfronts emotionallyHas good excusesLets one project influence another Often interruptsPeople-oriented Juggles the factsFlexible truthImpatientUnlimited body languagePulls strings

Mixes the social & professionalMulti tasksPunctuality not important

REACTIVE

Listens most of the timeUses both data and people sources

Looks at general principlesPolite and indirectConceals feelingsNever confrontsMust not lose faceSees the whole pictureDoesn’t interruptVery people-orientedStatements are promisesDiplomacy over truthPatientSubtle body languageNetworks

Connects the social & professionalReacts to partner’s actionPunctuality important

Typical differences between people from different global cultural types:



56

CONTENTS RUNNING OPERATIONS:

58 Introduction

59 Import

63 Local Content

69 Corporate Social Responsibility



57





The focus of this guide is the critical start-up phase.

But some issues naturally tend to require more

attention later in a company’s life cycle rather than

at start up. This section discusses some business

areas that normally become more important as the

Brazilian subsidiary matures.

The issues from the start-up phase are ofcourse just as important during the long-termsustainable business operation.

Once systems and routines are in place,they must be continually monitored and adjusted to the company’s growth and changedexternal factors.

INTRODUCTION





It is highly recommended

to use a specialized

Brazilian shipping handler/

logistics company to assist

in the import and customs

clearance processes.

IMPORTImport taxes are high in Brazil. In general, most imported goods sold

in Brazil are considerably more expensive than in Norway, due the

high tax level. It is not uncommon that the sum of taxes is higher than

the shipped product value.

Overview

The import process requires a lot of atten-tion to detail. It is highly recommended to

use a specialized Brazilian shipping handler/logistics company to assist in the import andcustoms clearance processes. Any suspicionof irregularities (such as a shipping docu-ment not filled in completely in accordance with Brazilian regulations) will subject theimported goods to the approval of a Cus-toms Inspector, who will generally requireadditional documentation before making a fi-nal decision on tax levels and possible fines.Retrieving goods stuck in customscan be time-consuming and costly.

There are several special customs regimes,most notable REPETRO, which suspendsfederal taxes for specified goods to the oiland gas industry.

Import License To be able to import goods, you need animport license named RADAR, which comes

in two varieties:

Simplified RADAR, which is valid for imports of an aggregated value of upto USD 150,000 per 6 month period.This license is fairly straightforward toget. The time frame is around 30-60days after all documentation has beensubmitted.

Regular RADAR, valid for all importvalues. Obtaining the regular RADARlicense is more complicated than thesimplified RADAR. One of the additionalrequirements is that the company needsto have a working capital equivalent toat least 12 months of estimated imports.Time frame is 60-90 days after all docu-mentation has been submitted.

When the license has been granted, thecompany gets access to SISCOMEX, theIntegrated System on Foreign Trade, whichis an electronic control system connectingthe Brazilian authorities that control importactivities.





Import Taxes for Goods

The classification of goods follows the stand-ard Mercosur harmonized nomenclature. The figure below shows an overview of thetaxes levied on imported goods in Brazil. Theactual calculation follows a convoluted setof formulas, depending on various productspecific and logistical factors.

Tax

Name

Description Tax

Authority

%

II Import Tax, calculated based on customs

value plus insurance and freight (CIF).Imports of goods are also subject to IPIand ICMS.

Federal Up to 35% for most products

AFRMM Merchant Marine Renewal Tax, appliesonly to imports by sea.

Federal 25% on ocean freight plus all porthandling charges.

PIS/

COFINS

Social Integration Programme (PIS) andContribution for Social Security Funding(COFINS), levied on total invoiced value.

Federal 9.25% combined rate.

IPI Excise Tax, levied on the sales value of

imported or manufactured goods.

Federal Up to 30% for most products. A

few products (like cigarettes) can betaxed at up to 300%

ICMS State Value Added Tax, levied on theimport and domestic circulation of goods,and on certain services such as tele-communications, electricity, and inter-municipal transportation.

State Goods + circulation within the samestate: 18-19%

Circulation between states: 12% for goods originating in the South andSoutheast, 7% for the rest of thecountry.

Except for the Import Tax (II), the amountpaid for these taxes will be taken as credit bythe importer and offset against the taxes duein subsequent transactions.

Authorities Involved in the Import

Process

The Brazilian government authorities whichare involved in the control of import activities:

The Secretary of Foreign Trade (SE-

CEX) is the department of the Ministryfor Development, Industry and ForeignTrade which manages registration andlicensing.

The Central Bank of Brazil is re-sponsible for foreign exchange controlsinvolving financed imports.

Receita Federal, which correspondsto the Internal Revenue Service in theUnited States or “Skatteetaten” in Nor- way, is the department of the Ministry ofFinance (“Ministerio da Fazenda”) whichis responsible for customs clearance,taxation and valuation, among other duties.

Import taxes for goods







Which Goods Can Qualify for Importthrough REPETRO?The main goods eligible for REPETROimport: Machinery, instruments, tools and equip-

ments to be used in the exploration andproduction of oil and gas.

Drilling and production platforms. Special equipment and structures in

relation to platforms.

Which Companies Can Qualify forImport through REPETRO?Companies that may qualify for the REPETRO: Companies holding a concession or

authorization to carry out activities of

exploration and production of oil andnatural gas in Brazil

A legal entity contracted by the conces-sionaire for the provision of servicesaimed at the completion of the activitiesenvisaged in the authorization/conces-sion.

Requirements for Goods Importedthrough REPETRO The goods shall be imported without

exchange cover. The supply contract must foresee the

period that the goods will remain withinBrazilian territory. The admission of thegoods under REPETRO will be grantedfor the same period as stated in thesupply contract.

The duration of time the goods remainin Brazil may not exceed the termstipulated in rental or loan agreements.It is important to note that if the goodsthat are subject to tax suspensiontreatment do not leave Brazilian territoryafter expiration of the contractual term,

the federal tax suspension will expireand the taxes will be due just like on aregular import operation.

Beneficiaries must have a specificsystem to identify and control the assetstemporary admitted from abroad, as well as domestic assets covered by theh exportation, as long as they remain inthe regime in Brazil.





LOCAL CONTENTThe Brazilian government’s goal is to bring the level of local

content (goods and services produced in Brazil) up to 90% in

2020. Although a pragmatic approach will be likely because of

capacity limits in the Brazilian market, the importance of local

production is set to increase.

Introduction

The following graph shows the overalldevelopment of local content commitmentthroughout the concession bidding rounds.

This is the legal driver of local content on amacro level, as the operators need to provethat they have reached the local content thatthey committed for in their license.

The actual results so far show that in manyof the concession contracts, the localcontent achieved has been less than com-

mitted. This has led to a discussion with theregulatory entity (ANP), which has the power to fine to license holders that do not achievethe committed level.

ANP fined Petrobras almost USD 20 millionin July 2011. At press time it has not beendecided what Petrobras will eventually pay,but it is highly likely that the demand onsuppliers to provide local content will willcontinue increasing.

The Brazilian Development Bank (BNDES) just launched a 4 year, USD 2.5 billionsupport program with credit available for Brazilian suppliers to the oil and offshore in-dustries, in order to strengthen the Braziliansupply chain. This will make it more chal-lenging for foreign suppliers to compete. On

the other hand, this is good news for foreigncompanies establishing a local presence, astheir Brazilian subsidiary will be able to ac-cess this credit line.

Local Content Evolution

27%

48%

40%

54%

86% 89%81%

77%

84%

25%

42%

28%39%

79%86%

79%

1st 2nd 3th 4th 5th 6th 7th 8th(1) 9th 10th

Exploration Phase

Development Phase

Source: ANP

Note (1): 8th ANP bidding round auction is still under discussion

74%69%





Local Content Levels

Petrobras business plan defines a goal ofachieving 67% local content for all invest-ments made in the years 2010-2014:

Business Unit Investments in

Brazil

Purchased in

Brazilian Market

Brazilian

Content (%)

E & P 108.2 57.8 53%

RTM and Petrochem 78.6 62.8 80%

Gas & Energy 17.6 14.4 82%

Distribution 2.3 2.3 100%

Biofuels 2.3 2.3 100%

Corporate 3.3 2.6 80%

Total 212.3 142.2 67%

This translates into around USD 28 billion ofpurchases in Brazil per year, up from USD

20 billion in the previous business plan.

Specific local content levels are defined for the exploration and production phases of aproject.

1. Exploration phase:Overall local content level is 37-55% for theentire phase. Local content levels for newprojects, selected items:

Exploration Phase

Sub-system Item Minimum Local

Content by Item

(%)

Minimum Local

Content Explora-

tion Phase (%)

Operating Support Logistics Support (Maritime/Air/Base)

50

37

Geology and

Geophysics

Acquisition 5

Interpretation and Processing 85

Drilling, Evaluation

and Completion

Chartered Drill Rigs 10

Drilling + Completion 58

Auxiliary Systems 52

Long-Duration Test (TLD) Chartered Drill Rigs 20

Petrobras investment plan and local content.





2. Production development phase:55-65% local content requirement for theentire phase. Local content levels for newprojects, selected items:

Development of Production Phase

Sub-system Item Minimum Local Content Item (%)

Modules With

1st Oil by

2016

Modules With

1st Oil in 2017-

2018

Modules With 1st

Oil by or After 2019

Drilling

Evaluation

and

Completion

Charter Drill Rig 29 50 65

Logistic Support (Maritime/Air/Base)

50 50 60

Christmas Tree 70 70 70Drilling + Completion 49 49 49

Auxiliary Systems 52 40 52

Systems of

Collection of

Production

Pipelines 100 100 100

Basic Engineering 50 50 50

Detail Engineering 95 95 95

Management, Construction and Assembly

80 80 80

Production line/injection flexibles(Flowlines, Risers)

56 56 56

Production Lines/Injection Rigid 50 50 50Manifolds 70 70 70

Underwater Control System 0 0 0

Umbilicals 55 55 55

Stationary

Production

Unit

Hull 70 70 70

Basic Engineering 65 65 65

Detail Engineering 65 65 65

Management, Construction and Assembly

65 65 65

Installation and Integration ofModules

65 65 80

Plants – Construction and Assembly

65 65 80

Plants – Basic engineering 65 65 65

Plants – Detail Engineering 65 65 65

Plants – Service Assembly 65 65 65

Plants – Materials 71 71 70

Pre-installation and Hook-up ofanchor cables

65 65 65

Multiple Anchoring Systems 65 65 65

Simple Anchoring Systems 65 65 65

Naval Systems 65 65 65

Overall Minimum Local Content 55 58 65





Local Content Implications for

Operators

In order to assure compliance with the localcontent requirements, the Brazilian oil andgas regulator ANP undertakes quarterlyfollow-ups of the investments and activitiesthat are performed.

ANP audits are performed (1) after thestatement of commercial viability of a field;(2) after the conclusion of the explorationphase; (3) at the end of the developmentphase; and (4) when a block is returned, fol-lowed by the termination of the concessionagreement.

In these cases, the operator of the blockmust submit supporting documents to ANP,including commercial agreements and taxreceipts. If the calculated local content per-centage is equal to or higher than what was

established in the agreement, the commit-ment is considered as having been complied with. If the local content level is too low, ANP can impose fines to the operator.

Local Content Implications for

Suppliers

The performance of suppliers with regardto local content is measured throughoutthe life of a project. Each level of suppliersand sub-suppliers needs to prove the levelof local content through certificates issuedby an authorized local content certificationcompany. This is in general a convoluted and

time consuming process.

The required local content percentage for aspecific purchase is normally defined by thepurchaser. Purchasers usually aggregate thelocal content level for all their suppliers, andtherefore have some latitude in determin-ing the percentage required for an individualpurchase. A good price may offset a lack oflocal content at this level.





Goods Services Goods of

temporary use:

Systems

Machines

Equipment

Parts

Materials

Chemicals

Own labor,direct/indirect

Contractedlabor

Consultancy

MachinesEquipmentBoats and shipsDrilling rigsGround and air

logistics

Combinations ofgoods, servicesand temporarygoods in thesame certifica-tion process

The certification process becomes morecomplicated as services and goods for temporary use are included, as shown in thisillustration:

Moderate Services High

Certification complexity

Goods Possibility of early CERTIFICATIONOne certificate is required for each distinct product with

distinct technical specifications.Project series may have a single certificate

Services Possibility of early ANALYSIS One certificate per service performed ANP recommends associating one or more tax documents

per certificate Issue the certificate only when performing the contract

between supplier and the oil company

Goods of

Temporary Use

Possibility of early CERTIFICATIONSystems using goods of temporary use previously certified

or measured will receive the certification quickly

Systems Possibility of early ANALYSIS

Issue the certificate only when performing the contractbetween supplier and the oil company

Systems using goods, services and goods of temporary usepreviously certified or measured will receive the certificationquickly

Local content certificates are attached tothe invoices. Each supply level aggregatesthe local percentage levels from lower levelsbased on the certificates. In the end, the oilfield operator makes the final aggregationand arrives at the total local content level, which is submitted to ANP for analysis.

The ideal local content strategy is basedon product, ambitions and market specif-ics, and will vary from supplier to supplier.But it is safe to predict that suppliers ableto add local content will have an increas-ing strategic advantage in the Brazilianmarket.

Certification of local content





Regulations

At the moment, the following regulations relating to Local Content must be observed:

Resolutions ANP for Local Content Aimed at

Resolution ANP No. 36, dated11.13.2007 - Regulation of LocalContent Certification (contains the LocalContent Booklet annexed)

Suppliers of goods and services, conces-sionaires and entities dully qualified andaccredited by the ANP to execute LocalContent Certification activities.

Resolution ANP No. 37, dated11.13.2007 - Regulation of Accreditationof Entities for Local Content Certification

Entities wishing to be accredited by the ANP to provide the Certification of LocalContent.

Resolution ANP No. 38, dated11.13.2007 - Regulation for Audit ofLocal Content Certification

Entities duly qualified and accredited bythe ANP to execute Local ContentCertification activities.

Resolution ANP No. 39, dated11.13.2007 - Regulation for LocalInvestments Report in Exploration andDevelopment

Concessionaires





CORPORATE SOCIALRESPONSIBILITY

CSR Impact in Brazil

Brazil is unfortunately a country of greatsocial inequality. Brazil is ranked as number 73 in UN’s Human Development Index for 2010, behind countries such as Iran, Azer-baijan and Libya. Also in 2010, the Brazil-

ian official census showed that 16,2 millionpeople live in absolute poverty, and about 39million are functionally illiterate. These indi-cators are improving in Brazil, but slowly. Alittle help from the private sector goes a long way, and often has an immediate impact onpeople’s living conditions.

Tax Benefits for Donors

The Brazilian government has created lawsthat permit private Brazilian companies,

including subsidiaries of foreign companies,to discount up to 10% of various taxes withdonations to approved social, cultural andsports related projects.

Existing Norwegian-Brazilian

Projects

KaranbaThe Karanba project was created in 2005 inRio de Janeiro by Tommy Nilsen, a former professional football player for Lyn Oslo. The

project gained national fame in Norway in2010 through a series of TV documentaries.

After discovering Rio de Janeiro’s hugesocial differences, Tommy decided to initiatea project where football can provide life op-portunities for children and adolescents fromthe favelas (slum cities), often governed byviolent drug gangs.

Karanba’s vision is to use football as meansof guidance, and to pass on values and at-titudes which will enable the youngsters toovercome obstacles in their life in a construc-tive and future-building manner. The objec-tive is to give them hope and belief by doingsomething positive, and is an expression of

the role sports can play in social progress.

The project has the support of a number ofmajor Norwegian companies in Brazil andNorway, as well as individual supporters.

Website: www.karanba.com

Dream, Learn, WorkDream, Learn, Work (DLW) is a CSR projectinitiated by six Norwegian companies: DNV,STX Europe, NorSkan Offshore, DNB Nor,

Jotun Coatings and Kongsberg.

The idea was to create a project that wouldhave a practical impact on the Brazilian so-ciety. Their solution was DLW, an institutionthat provides young Brazilians with a better future through education. DLW providescourses ranging from elementary educa-tion to tailor-made oil/offshore technicianprograms at a professional level.

Brazil lacks skilled labor within the maritime& offshore industry, and DLW is a project

destined to contribute to solving this chal-lenge. By offering tailor-made programs thateducate oil and gas technicians and other professionals the sponsoring companies arein need of, DLW helps providing the skilledlabor needed for oil and gas operations as well as contributing positively to the Braziliansociety.

Website: www.dreamlearnwork.com



70

CONTENTS APPENDICES:

72 Appendix 1: Useful Contracts

74 Appendix 2: Labor Law

76 Appendix 3: Accounting and Financial Reports

77 Appendix 4: Differences between “Limitada” and “S.A.” Company Types

78 Appendix 5: Framework and Stakeholders

82 Appendix 6: Brazilian Shipyards



71





1: USEFUL CONTACTS

Norwegian Organizations

Innovation NorwayInnovation Norway is the Norwegiangovernment’s official trade representa-tive abroad, and supports companies indeveloping their competitive advantage

and to enhance innovation. InnovationNorway provides competence, advi-sory services, promotional services andnetwork services, as well as financialsupport through GIEK (Garanti-instituttetfor Eksport-Kreditt).

+55 (21) 2586 7500Representative Rio de Janeiro:Reidun Beate Olsen,[email protected]

INTSOK

INTSOK was established in 1997 by theNorwegian Oil and gas industry and heNorwegian Government. INTSOK works with companies throughout the industryto expand their business activities in theinternational oil and gas markets. INT-SOK functions as an advisor and facilita-tor focusing on a few main oil and gasmarkets, including Brazil. Intsok providesmarket information, local advisors, net- working opportunities and client seminarsand workshops where partners get thechance to expose their capabilities andtechnologies to all major oil companiesand main contractors.

+55 21 3544 0010Oil and Gas Advisor Rio de Janeiro:Vitor Azevedo, [email protected]

Norwegian-Brazilian Chamber ofCommerceThe Norwegian Brazilian Chamber of Com-merce (NBCC) was established in 1995 asa non-profit and non-political association.Its purpose is to promote trade and good will, and to foster business, financial and

professional interests between Norway andBrazil. The members are companies andindividuals interested in developing theseobjectives. The NBCC arranges luncheons,network dinners, seminars and meetings,and promotes its members among Brazilianindustry leaders. NBCC publishes articlesin media reaching the Brazilian businesscommunity, and members and industryfriends receive a weekly newsletter.

+55 (21) [email protected] President: Tor-Ove Horstad

(Norsk Hydro)www.nbcc.com.br

Brazilian Organizations

Apex-Brasil – Brazilian Trade andInvestment Agency Apex-Brasil promotes investment oppor-tunities to attract foreign direct investorsto Brazil. Services: Market information,industry analyses, general guidelineson legal and fiscal matters, informationon input costs, suitable locations and

talent pool availability. Using an extensivenetwork of companies, associations andauthorities, Apex-Brasil can also actas liaison between potential partners,key suppliers and regulatory and localauthorities.

Location: Brasilia+55 (61) 3426-0202 General Manager:Mr. Gutemberg Uchoawww.apexbrasil.com.br

FIRJAN – Federation of Industriesin Rio de JaneiroProvides market information and industrycontacts.http://www.firjan.org.br

ONIP – The National Organizationof the Petroleum IndustryONIP is a private non-profit organiza-tion, bringing together the main agentsinvolved in the production, processing,transport and distribution operationsof oil and natural gas in Brazil. ONIPpromotes partnership between local andinternational suppliers, with the intentionto increase local installed capacity, andspecially establishing technology transfer agreements. ONIP provides market infoand industry contacts.www.onip.org.br

Market Introduction,Company Administration

and Development

Inventure ManagementLocation: Rio de Janeiro, Macaé, Bergenwww.inventuremanagement.com

Repesentation/Agents

Maritime & Offshore Partnerswww.mopartners.com.br

Paschoalin

www.paschoalin.com.br

Mergers & Acquisitions

Inventure ManagementLocation: Rio de Janeiro, Macaé, Bergenwww.inventuremanagement.com

BrascaLocation: Oslowww.brasca.no

Brasilpar

www.brasilpar.com.br



APPENDICES 73


Management Headhunting

and Staffing

(Incl Blue Collar)

Cathowww.catho.com.br

Managerwww.manager.com.br

Consulty RHGlaucia Cavalcante+55 (22) 8815-7293 [email protected] www.consultyrh.com.br

Michael PageDaniel Garrido+55 (21) [email protected]

www.michaelpage.com.br

Petra Executive SearchCristina Lima+ 55 (21) 3550 0731+ 55 (21) 8463 5960www.petraexec.com.br

Accounting and Controller

Functions

Inventure ManagementLocation: Rio de Janeiro, Macaé, Bergen

www.inventuremanagement.com

PlanusFelipe Pestana+55 (21) [email protected] http://www.grupoplanus.com.br/

Mirahy Serviços contabeisPedro Paulo de Oliveira+55 (21) 2253-6676

Recall LedgerRoberto Mansur

+55 (21) [email protected] - r www.recall-ledger.com.br

ACAL ConsultoriaGelson Amaro+55 (21)2159-8812 [email protected]

www.acal.com.br

Legal support

Xavier, Bernardes, Bragança+55 (21) 2272-9200www.xbb.com.br

Law Offices Carl KincaidCamila Mendes Vianna Cardoso+55 (21) 2223-4212 www.kincaid.com.br

ACTTax planning+55 (21) 2536-3800www.actnet.com.br

DLA Piper & Campos MelloLuiz Antonio Lemos+55 (21) 3262 3031www.camposmelloadv.com.br www.dlapiper.com

Tauil & Chequer Advogados,Associado a Mayer Brown LLPTax planningIvan Tauil [email protected]+55 (21) 2127 4213

www.mayerbrown.com

Pereira & MaronSergio Maron+55 (21) [email protected] www.pmadv.com.br

Villemor AmaralMarcio Leal +55 (21) [email protected]

Montaury Pimenta, Machado& Vieira De MelloCopyright and TrademarkLuiz Edgard Montaury Pimenta+55 (21) [email protected] www.montaury.com.br

Logistics, Customs,

Repetro

NicomexGilberto Castro+55 (21) 3184-6102 [email protected] www.nicomex.com.br

StileHermano Berger Location: Vitoria, Espirito Santo

+55 (27) [email protected] www.stilecomercial.com.br

DHL Oil & EnergyRogerio Rodrigues+55 (21) [email protected]

www.dhl.com

Rental and Purchase of

Property – Recidences

and Offices

Isaac and Michel Chamovitz+55 (21) 9988-4468 [email protected] http://www.grupoapi.com.br

http://api.adm.br

Marketing Services

Markedsavdelingen Jørgen Tengs-PedersenLocation: Rio de Janeiro, Stavanger +55 (21) 951 36 759

[email protected]

This appendix lists useful contacts and possible partners to support a

foreign company entering the Brazilian market. The list is not exhaustive.

All companies are located in Rio de Janeiro unless otherwise specified.





2: LABOR LAW

The basic principles concerning labor relations in Brazil are contained in theLabor Consolidated Act enacted onMay 1, 1943. Since then, however,scattered statutes have been passedcovering wage increases, social securityand pension funds, strikes, health and

safety standards, and protection ofcertain specific classes of workers. TheFederal Constitution of 1988 has alsoestablished certain rights for urban andrural workers which overruled some ofthose set forth by the Labor Code.

Definition of Employee

An employee is defined as an individual who renders services to the companyon a permanent basis, under its direc-tion and for a salary. Subordination isessential in an employment relationship. According to such principle, directorsand officers of a corporation generallyare not employees. Companies belong-ing to a group of legal entities under thesame control, direction or managementare jointly liable for the obligations of anycompany belonging to such group withrespect to the employment relationship.

Labor Agreements

Individual labor agreements may be setforth in writing or may be implied from

the relationship between an individualand the company to which he or sherenders services. The company andemployees may freely negotiate labor agreements, provided, however, that theprovisions of the law, the decisions ofthe competent authorities and the termsand conditions of the relevant collectivebargaining labor agreement, if any, areobserved.

Collective bargaining labor agreementsare those executed between the employ-ers’ association and employees union,or between the employees’ union anda specific company, for purposes ofestablishing general and normative rules which govern the relationship of a givencategory of employers and employees.

Collective bargaining labor agreementsare not compulsory but, once they areentered into, their terms and conditionsprevail over individual contracts.

Compensation

Compensation comprises not only theemployee’s fixed salary, but also amountsfor any commissions, bonuses (Christ-mas or otherwise), fringe benefits, suchas personal or family benefits and livingexpenses. Compensation may not bereduced, except by means of a collectivebargaining labor agreement. Compensa-tion, with the exception of commissions,must be paid at least monthly. Employ-ees are entitled to receive a Christmasbonus corresponding to one monthly sal-ary per year. Half of the Christmas bonusmust be paid by November 30th, and theother half on or before December 20th.

Under the Federal Constitution of 1988, workers are guaranteed a share in theprofits or results of the employer’s activi-ties, irrespective of compensation. Profit/result sharing payments shall not becomputed as part of the workers’ com-pensation for calculation of the Christ-mas bonus, vacations, deposits into theSeverance Pay Fund, etc.

Salary Increases

Except for increases based on negotia-tions between employers and employ-ees (whether on an individual basis or through annual negotiations of collec-tive bargaining agreements), no other adjustment in the monthly base salary isrequired.

Working hours

On a general basis, the regular workingperiod may not exceed eight (8) hours

per day and forty-four (44) hours per week except where, as per a collectivebargaining agreement, additional hours worked on one day are offset by a reduc-tion in those worked on another day,provided that the total work hours do not

exceed ten hours per day. Compensa-tion for overtime work must be at leastfifty percent (50%) greater than thecompensation for normal work. Note thatfor some particular activities, such as theones rendered in offshore, there is spe-cific regulation regarding working hours

and payments associated with it.

Vacations and Leaves of

Absence

After each 12-month working period,an employee is entitled to a thirty (30)day vacation, which must be taken within the subsequent period of twelve(12) months. In addition, the employeeis entitled to receive a vacation bonusequivalent to one-third of his or her compensation.

Maternity leave is granted for a period ofone-hundred and twenty (120) days, ex-tendable to 180 days. During maternityleave, the salary is paid by the employer which, in turn, is reimbursed by theSocial Security Agency.

A paternity leave of five (5) days is alsoprovided for by the Federal Constitution.

Term of Individual Labor

Agreements

The term of an employment contract maybe either indefinite or fixed, the latter permitted only in specific circumstances.Pursuant to the law, the term of anemployment contract will be consideredindefinite in any of the following cases:(i) the contract expressly states that theterm is indefinite; (ii) the contract doesnot stipulate a term; (iii) a contract for a fixed term is implicitly or expresslyrenewed more than once; and (iv) anexisting contract for a fixed term isterminated and within six months as of

such termination, another contract for afixed term is entered into, with the sameemployee, except where the terminationof the fixed term was connected to theexecution of specialized services or oc-currence of certain events.



APPENDICES 75


In comparison to employment contractsfor an indefinite term, enhanced flexibilityand reduced benefit contributions andseverance payments are the primaryadvantages of fixed term contracts. Theterm of an employment contract willbe considered fixed where its term of

validity is a pre-set term or subject to theexecution of specified services or occur-rence of an event that is approximatelyforeseeable. An employment contractfor a fixed term is permitted: (i) duringan initial 90 day trial employment period,the continuation of which will trigger itstransformation into a contract for an in-definite term; and (ii) for a maximum twoyear term where: (a) the nature of theobject services, including the transitionalnature, justifies a pre-set term; (b) theobject services are related to businessactivities of a transitional nature; or (c)

the contracted employees, regardless ofthe area of activity or company, repre-sent an increase in the total number ofemployees.

Termination of Individual

Labor Agreements

Individual agreements may be terminatedupon lapse of the determined period or by notice from either the company or theemployee.

In the event of termination, the employeeis entitled to receive (a) the balance ofhis or her pay, (b) the correspondingpayment for vacations not taken, and(c) a proportional amount of the Christ-mas bonus equivalent to the number ofmonths he or she has worked during thecalendar year.

In the event fixed-term agreements areterminated without cause, the termi-nating party must pay damages in theamount of fifty percent (50%) of thecompensation established for the remain-

ing term of the agreement. In the caseof contracts with an indefinite term, theterminating party must give prior noticeof at least thirty (30) days.

The employee who registers as acandidate for a position of union leader or representative may not be dismissedas of the date of said registration untilone year after termination of the termof office, even if elected as alternate,unless the employee commits a serious

fault under the terms of the law. Other employees who have attained a tempo-rary employment stability set forth either by law or by collective bargaining agree-ment, such as expectant mothers andemployees that have been away from work due to work accident, may not bedismissed either.

Social Security and Pension

Funds

The company and employees must make

compulsory contributions to the Fed-eral Social Security Agency which is incharge of managing a system designedto protect the employee in case of illnessand retirement.

Individual employee contributions rangefrom seven point sixty five (7.65) toeleven (11) percent of the salary up to alimit of approximately US$830.00 (eighthundred and thirty American dollars).

The company contributions averagetwenty-seven percent (27%) of employ-

ee’s overall salary. Contributions may behigher than this average should the em-ployees be subject to health hazardous working conditions. Also, all companiesmust withhold social security contribu-tions of twenty percent (20%) over thetotal compensation paid to corporatedirectors and independent contractors.

Severance Payment Fund

(FGTS)

The company must deposit, on a monthly

basis, eight percent (8%) of each em-ployee’s salary on his or her behalf in aFund administered by a federal financialinstitution1). The deposited funds mayonly be withdrawn in events of dismissal,

retirement, purchase of real estate anddeath.

For dismissals without cause, employ-ers are required to pay employeesan amount of 50% of the balance ondeposit in the Fund2).

The amounts deposited are subject tomonthly monetary adjustment equal tothat of savings accounts and bear inter-est at a rate that may vary from threepercent (3%) up to six percent (6%) per year, depending on the employment term with the same employer.

1) Currently, an additional monthly deposit of zero point five percent (0.5%) of each employee’s salary must also be madeby the employer, although the corresponding amounts are not earmarked on behalf of any particular employee.

2) Currently, an additional deposit of ten percent (10%) must also be made by the employer, although the corresponding amounts are not paid to the employee who has been dismissed.

Health Hazard Allowance

Brazilian labor laws provide for the pay-ment of a monthly amount equivalentto ten percent (10%), twenty percent(20%) or forty percent (40%) of theminimum wage to the employees work-ing under hazardous health conditions.The amount of such payments variesin accordance with the degree of suchhazardous health conditions. Only an ex-pert appraisal can definitively confirm theexistence of hazardous health conditions.

The company may avoid or mitigate theobligation to the payment of the men-tioned additional amount by neutralizingthe hazardous health conditions, whichcan be done by providing the employees with adequate Equipment for IndividualProtection (EPI).

Dangerous Work Allowance

Employees under dangerous workingconditions, such as those in contact with

explosives, flammable materials or elec-tricity, are entitled to an additional thirtypercent (30%) of their correspondingbase salary. Only an expert appraisal candefinitively confirm the existence of risky working conditions.





3: ACCOUNTING ANDFINANCIAL REPORTS

This is an overview of the accounting reports required by various Brazilian authorities. It is highly recommended tooutsource the accounting function to an accounting agency.

Nature Of The Activity Frequency Tax Authority Comments

Accounting reports / returns

Daily journal and general ledger Monthly Federal /Board of Trade Actual Profit System only

Trial balances in local currency Monthly Federal /Board of Trade

Actual Profit System only

Balance sheet and statement of income in local cur-rency (BR GAAP)

Annual Federal /Board of Trade


Bookkeeping of the auxiliary ledgers and analyticalstatement of the accounts for property, plant andequipment

Monthly Federal /Board of Trade


SPED - Accounting Annual Federal

Tax reports and accessory obligation

DES - Electronic Declaration of Services Monthly Municipal a

Inbound and Outbound Books of ICMS and IPI Monthly State a

Calculation Books of ICMS and IPI (tax on manufac-tured products)

Monthly State a

GIA - ICMS tax calculation declaration Monthly State Even without movement

DACON - Social Contribution Control Statement Monthly Federal a

LALUR - Taxable Income Control Register Monthly Federal Actual Profit System only

DIPJ - Annual Corporate Income Tax Return Annual Federal Even without movement

DIRF - Withholding Tax Return (DIRF) and respectiveincome returns of service providers

Annual Federal a

DCTF - Prepare the Statement of Federal Tax Debits

and Credits (DCTF)

Monthly Federal a

SPED - Fiscal Monthly Federal

Payroll related reports and accessory obligation

GFIP - FGTS and INSS calculation Monthly Federal /Social Security

Even without movement b

RAIS - Annual Listing of Information and Salaries Annual Ministry ofLabor

Even without movement b

General Roster of Employed and Unemployed Indi-viduals (CAGED)

Monthly Ministry ofLabor

If employees were hired only

Preparation of Withholding Tax Return (DIRF) Annual Federal If employees were hired only

a) If the entity had one unique transaction subject to this taxation, the declaration will be required.b) For the submission of these returns a specific digital access (named Conectividade Social) will be necessary to have registered by the company.



APPENDICES 77


4: DIFFERENCESBETWEEN “LIMITADA” AND

“S.A.” COMPANY TYPESLimitada (Limited Liability

Company - “Sociedade

Limitada”)

A Limited Liability Company, or Limi-tada, is a contractual company madeup of two or more individuals or legalentities known as partners or quotaholders. There is no restriction onforeign partners, except that they mustbe represented by an attorney-in-fact with permanent residency in Brazil. Thecorporate capital is split into quotas which are not freely transferrable. Anychanges to the ownership structure musttherefore be registered in the articles ofassociation.

The Limitada offers investors a flex-ible decision-making process with lessbureaucracy and administrative paper- work than in a Corporation. There is norequirement to publish or audit companyaccounts, organise annual general meet-ings or appoint a board of directors.Key resolutions such as the approval ofaccounts and amendments to the articlesof association are made directly by part-ners at partners’ meetings or assemblies.Unanimous decisions can be taken by a

simple written resolution (“Ato”) signedby all partners.

A Limitada is managed by one or severalexecutive officers (“administrador”) whoare appointed directly by the partners. An executive officer does not need tobe a Brazilian citizen, but must hold apermanent Brazilian residence permit.The chief executive officer holds thecompany’s signature and represents theLimitada before third parties. The powersdelegated to the executive officers aredescribed in the articles of association or

in other corporate agreements.

S.A. (Joint Stock Company

- “Sociedade Anônima”)

An S.A. is a company set up by one or more individuals or legal entities know asshareholders. There is no limitation onforeign ownership, but foreign sharehold-ers must be represented by an attorney-in-fact permanently residing in Brazil.The corporate capital is split into shares which are freely transferrable unlessrestricted in the articles of association.

The decision-making process in an S.A.is more formal than in a Limitada. Own-ership control is exercised at sharehold-ers’ general meetings. The shareholders’

general meeting in turn elect a boardof directors who appoints two executiveofficers, the “Diretoria”, to take chargeof the day to day management of thecompany. The powers delegated to theexecutive officers are also set out in thecompany’s articles of association or inother corporate agreements.

Unlike the Limitada, an S.A. can listshares and issue corporate bonds onthe stock exchange. Shares can alsobe traded in over-the-counter markets.Shares can be classified as common or preferred stock and split into differentclasses depending on the economic andvoting rights granted to the holders.

Conclusion

The Limitada’s flexible decision mak-ing mechanisms, reduced bureaucracy,greater confidentiality and lower operat-ing costs makes it a very attractive optionfor small and medium sized companies. An S.A., on the other hand, with itsfreely transferrable shares, more formal

decision-making process and easier access to external financing makes it anexcellent choice for larger companies with a more diversified shareholding.





5: FRAMEWORK AND STAKEHOLDERS

Main Governmental Players

In Brazil, the government entities with themost important roles in formulating andimplementing policies related to or in theregulation of petroleum activities are:

The National Energy Policy(CNPE)The CNPE is a body directly linked to thePresidency, and chaired by the Minister

of Mines and Energy. Its responsibili-ties include, among others, to proposenational policies and specific measuresto promote the rational use of energyresources in Brazil and to ensure thesupply of energy to remote areas or dif-ficult to access. The CNPE is an advisorybody to the extent that it seeks to makeproposals to the President, who mustissue final decisions on the policies to beaddopted.

The CNPE is responsible for drawing upguidelines and goals of the Government’s

action in the energy sector. Thus, it hasdirect role in the formulation of publicpolicies in order to articulate the interestsof the Government with the civil societyand market as a whole. To accomplishthe tasks set by the Petroleum Law,the CNPE relies on the assistance ofits specific regulator bodies responsiblefor directing more specific factual andtechnical issues.

The National Petroleum Agency(ANP)Under Article 7 of the Petroleum Law, ANP was created as an entity member of the Indirect Federal Administration,under the Ministry of Mines and Energy,

subject to special autarchic regime, asthe regulator of the industry of oil, naturalgas, its byproducts and biofuels.

The powers granted to the ANP by thePetroleum Law are listed in its articlesamong which we would like to highlight:(i) promoting the regulation, contractingand monitoring of economic activitiesin the petroleum industry, natural gasand biofuels; (ii ) implementing, within

its sphere of competence, the nationalpolicy of oil, natural gas and biofuelscontained in national energy policy;(iii) initiating studies aimed at delimit-ing blocks for the purpose of grantingconcession rights over the exploration,development and production of suchareas; ( iv) preparing Bid Tenders andconducting the biddings for the conces-sion of exploration, development andproduction, signing the contracts andoverseeing their respective implemen-tation, (v) regulating the execution ofgeological and geophysical surveys

applied to oil exploration, aiming at thecollection technical data, to be marketed,(vi) authorizing the activities of refining,processing, transportation, import andexport.

In such listing of powers of the ANP,it is important to underline its purposeof promoting the regulation, hiring andsupervision of activities related to oiland natural gas, implementing thus thenational policy of oil, natural gas and biofuels, comprised in the National EnergyPolicy. As such, the means used by the

ANP for the practical application of theseassignments is to issue ordinances andresolutions.

It is worth noting that the ANP, as provid-ed in the Petroleum Law, is responsiblefor resolving conflicts between economicplayers as well as between them and theconsumers.

Ministry of Mines and Energy(MME)The MME is directly linked to the Presi-dency, with its Minister being directlyappointed by the Brazilian President. Its

scope comprises (i) geology, mineral andenergy resources; (ii) hydrological andhydraulic power source; (iii) mining andmetallurgy; and (iv) the oil industry andelectric power, including nuclear plants.

After the establishment of the PetroleumLaw, the Minister of Mines and Energyhas accumulated a role as Presidentof the newly established CNPE, withattribution to propose to the Presidentnational policies and general measuresfor the sector.

With respect to its performance in the oiland natural gas sector, among variousother functions established by Presiden-tial Decree, it is under the responsibilityof the competent bodies of the MME topromote: (i) studies for understanding ofsedimentary basins, proposing guidelinesfor the areas to be awarded in a bidtender by the ANP; (ii) develop, proposeand monitor annual plans of exploration,development and production of oil andnatural gas; (iii) interact with regulatoryagencies, other public entities involved,as well as concessionaires of ANP, ad-

vising on the policies to be followed; (iv)coordinate and promote incentive pro-grams and actions, aimed at attracting



APPENDICES 79


investments and business sectors to thenational oil, natural gas and renewablefuels; proposing public policies aimed atgreater involvement of national industry;

(v) monitor and encourage research andtechnological development in the oil,natural gas and renewable fuels, andalong with ANP, promote the rationalexploitation of hydrocarbon reserves; and(vi) act as a facilitator in the interactionbetween the productive and environmen-tal entities.

The Brazilian Institute of Environ-ment and Natural Resources -(IBAMA) and the National Envi-ronment Council (CONAMA)IBAMA and CONAMA have as primary

functions, respectively, propose and im-plement national policies on environment,especially with regard to sustainable useof environmental resources, exercisingsupervision and control over such use. Brazil is a country with the great oil andgas potential, besides being one of therichest in biodiversity. Combining thesetwo facts clearly demonstrates thatenvironmental regulation is of paramountimportance, since it is a matter of latentinterest of the entire Brazilian populationand of the international community.

The roles of the National EnvironmentCouncil (CONAMA) and the BrazilianInstitute of Environment and NaturalResources (IBAMA) were established byfederal law in 1981. Since its creation,IBAMA was modified by several laws,however, a change of great significancemust be pointed out, which was theallocation of responsibility for environ-mental licensing to it. Among other tasksof IBAMA, we find (i) to implement thenational environmental policies con-cerning permanent federal attributions,for the preservation, conservation andsustainable use of natural resources as well as their control and supervision; and(ii) support the Ministry of Environmentin the execution of the Union’s sup-plementary actions, in accordance withthe guidelines of cited Ministry and theapplicable law.

IBAMA shall perform its tasks in theentire Brazilian territory, which means ac-tivities with significant national or regionalimpact (involving one or more Federal

States). In this sense, IBAMA may del-egate powers to the States, if possible.The State Environmental Agencies must

license the activities whose impactsextend across more than one city, or those held in conservation areas of statedomain. At the Municipal level, the en-

vironmental authorities must license theactivities with possible local impacts.

Also as in the case of the ANP, rules andregulations of environmental legisla-tion occur through resolutions issued byCONAMA. As a deliberative and con-sultancy body, CONAMA has the power to regulate and establish standards todetermine duties and federal regulationsthat must be considered by States andMunicipalities, as the executing agencyIBAMA, the government sets guidelinesfor the environment, sending both resolu-

tions, determinations, decisions andadministrative instructions.

Specifically in the E & P, the environ-mental licensing involves the followinglicenses:

“I - PRIOR LICENSE FOR DRILLING –“LPper”, authorizing the drilling activity.For such license, the concessionairemust present the Environmental ControlReport (“RCA”);

II - PRIOR LICENSE FOR RESEARCH

PRODUCTION – “LPpro”, allowingproduction for researches related tothe economic viability of the deposit. Toobtain such license, the concessionairemust present the Environmental ViabilityStudy (“EVA”);

III – INSTALLATION LICENSE – “LI”,authorizing the installation of the unitsand systems required for production anddelivery;

IV - OPERATING LICENSE – “LO”,authorizing, after the approval of theEnvironmental Control Project – (“PCA”),the start of the operations of the units,facilities and systems necessary for thedevelopment of the activities. “

National Agency of WaterwayTransportation (ANTAQ) ANTAQ is an entity of the direct publicadministration which, under the Ministryof Transports, aims at regulating water transportation and port activities.

The importance of ANTAQ in the oil

industry is due to the fact that most ofBrazil’s reserves of hydrocarbons arelocated in offshore areas. The agency

regulates all activities related to mari-time operations, establishing norms andstandards to be followed in conductingsuch operations, as transport of danger-

ous goods, including the granting oflicenses and permits.

Since the vast majority of petroleumoperations in Brazil is performed inmaritime areas, i.e. well within ANTAQ’sscope, it is essential that such entity hasa direct interface with ANP, since one ofthe requirements for authorization from ANP for certain operations is that theentrepreneur acquires the proper permitor authorization from ANTAQ for suchpurposes.

Another observation from the FederalLaw which created ANTAQ in 2001is the fact that ANTAQ has an obliga-tion to follow the specific powers of theNaval Command and operate under their guidance in matters of interest to theMerchant Navy National Defense, in ad-dition to safeguarding life at sea.

Brazilian Navy (NAVY)The Navy, through its Directorate ofPorts and Coasts, has as one of itsfunctions supervising the vessels used inactivities related to oil and gas, as well

as controlling traffic in Brazilian territorial waters.

Directorate of Ports and Coasts(DPC)The DPC is an agency of the BrazilianNavy that has regulatory and supervisoryfunctions with respect to the operation ofnational and foreign vessels in Brazilian waters. The regulation of DPC activitiesmore relevant to E&P is in NORMAN04/2003 laying down the rules for entryand permanence of vessels that will actin E&P activities, such as drilling rigs andFPSOs.

The DPC has a delegated agency, thePort Authority, whose responsibilitiesinclude the supervision and examinationof technical conditions of vessels andequipment, as well as the documentationand qualification of the crew.





Main Non-GovernmentalPublic Players

Petróleo Brasileiro S.A –PETROBRASPETROBRAS was established byFederal Law in 1953. Such law deter-mined the monopoly of the Union in theprospecting and exploitation of petroleumand other hydrocarbon fluids and noblegases, domestic or foreign petroleumrefining and maritime transport of crudeoil produced in the country. The law alsoestablished that such a monopoly shouldbe exercised by Petrobras and the (nowextinct) National Petroleum Council.

Incorporated as mixed-capital corpora-tion, in which the State holds the majorityof voting shares, Petrobras began opera-tions as early as January 1954, initiallyfocusing on onshore areas. However, theprocess of industrialization and urbaniza-tion during the 1960s forced Petrobrasto seek new alternatives. This neworientation has redirected investments tothe underwater platform.

In the 1970s, a series of discoveries,such as the Campos basin, sealed thesuccess of exploration activities offshore,

leading to increased production andpresenting results close to the needs ofdomestic consumption, leading the com-pany to undertake new investments. Inthe mid-80’s fiscal crisis, chronic inflationand falling economic growth impeded thegovernment’s investment in Petrobras,reducing its development.

In 1996 the giant Roncador field wasdiscovered in the north of the CamposBasin and then a series of discoveries was made in this region which quicklybecame Brazil’s most important oil pro-ducing area.

With the relaxation of the monopoly asa result of Constitutional Amendment9/95, followed by the Petroleum Act in

1997, Petrobras became the licensee of ANP. For such, contracts were executedawarding the concession for the areasthat Petrobras had already in production

phase, without the need of bidding. For areas under exploration by Petrobras, athree years term was given for Petrobrasto continue the activities, and findingmarketable oil, to acquire the concessionof the respective areas.

For E&P activities, Petrobras wasauthorized to establish joint ventures withdomestic or foreign companies, partici-pating in bidding rounds organized bythe ANP. In addition, Petrobras was freeto establish subsidiaries, which may joinother companies. Currently, Petrobras’ role in the industryof Oil and Gas in Brazil tends to grow,in view of the new regulatory frameworkfor the E&P industry, which has been re-cently approved by Congress. Such laws,in addition to establishing the productionsharing model in Brazil for the so-called“Pre –Salt” and strategic areas, definedPetrobras as the sole operator of suchareas.

The procedure for contracting services

by Petrobras is through simplified biddingprocedure. In this procedure, Petrobrasusually sends invitation letters to potentialservice providers, ensuring price anddelivery commitments for goods andservices.

Brazilian Institute of Oil, Gas andBiofuels (IBP)The Brazilian Institute of Oil, Gas andBiofuels - IBP is a private, nonprofitorganization founded in 1957, whichcurrently has over 200 member com-panies, and focuses on promoting the

development of national sector of oil, gasand biofuels, aiming at achieving a com-petitive, sustainable, ethical and sociallyresponsible national industry.

The IBP is highly recognized by thesociety and the government not only for its unique expertise, but also for stimulat-ing discussions of major topics for thestructure constant profile of the sector in order.

Since 2003, IBP has undergoneprofound organizational restructuringto ensure the adequacy of its services,products and activities related to the

sector, these being the result of the workof 42 committees and subcommittees, in which over 950 professionals voluntar-ily participate, including executives andindustry experts, scientific and academicinstitutions, government agencies andsimilar associations.

In this sense, the mission of IBP is topromote the development of the nationaloil, gas and biofuels industry, aimed ata competitive, sustainable, ethical andsocially responsible market. In particular,its objectives are (i) improving the regula-tory environment (ii) representation ofthe industry players, (iii) dissemination ofinformation, and (v) promotion of techni-cal development.

National Organization of thePetroleum Industry (ONIP)ONIP is a national institution whosepurpose is to act as the main forum for coordination and cooperation betweenthe companies involved in exploration,production, refining, processing, trans-porting and distribution if oil products,

suppliers of goods and services in the oilsector, government bodies and agencies,thereby contributing to increase globalcompetitiveness of the sector.

Its mission is to maximize local content inthe supply of goods and services, basedon a competitive cooperation, ensuringbroad equality of opportunities for the do-mestic supplier, expanding employmentand income generation in the country.

To this end, ONIP operates throughcoordination and orientation aiming at

reducing costs throughout the petroleumindustry’s supply chain, promoting theinteraction of local suppliers with the oilcompanies and the creation of partner-ships between domestic and foreignsuppliers. ONIP also aims to help removebarriers for the full development of thelocal industry.



APPENDICES 81






6: BRAZILIAN SHIPYARDS

Pacific

Ocean



APPENDICES 83

State Shipyard City Steel Process-

ing (ton/year)

Dry

Dock

Currently Constructing

Amazonas Erin - Estaleiros

Rio Negro

Manaus 5.000 Tug vessels and smaller ships

Pará Rio Maguari Belém 6.000 Yes Ferries, Tugboats, Catamarans

Ceará Inace Fortaleza 15.000 Patrol boats for the Brazilian Navyand tour boats

Pernambuco Atlântico Sul Ipojuca 160.000 Yes 10 Suezmax, 5 Aframax, Hull of thesemisub P-55, 4 Suezmax DP, 3 Aframax DP

STX OSV Promar Suape 20.000 Gas tankers and Supply vessels

Bahia Paraguaçu São Roque doParaguaçu

120.000 Yes

Rio de

Janeiro

STX OSV BrazilOffshore

Niterói 6.500 Supply Vessels (AHTS, PSV, OSCV,pipe laying)

UTC Engenharia Niterói 10.000 Modules of the P-56 generation

Mauá Niterói 36.000 Yes Product Vessels, repair/upgrade ofdrilling platforms

Renave and Enavi Niterói 40.000 Yes Repair of oil tankers, port containersand general cargo, construction of 3bunker vessels

Aliança Niterói 10.000 Supply vessels

Cassinú São Gonçalo 6.000 Yes Reform of the buoy support of therisers to the Santos basin and repair

of offshore vessels Arsenal deMarinha

Rio de Janeiro 10.000 Submarine and repair/modernizationof military vessels

Eisa Rio de Janeiro 52.000 4 Panamex vessels, port containersand supply vessels

Rio Nave Rio de Janeiro 48.000 Repair and modernization of medium-sized and offshore vessels

Inhaúma Rio de Janeiro 50.000 Repair of oil tankers and PSV’s

SRD Offshore Angra dosReis

15.000 Tug vessels

Brasfels Angra dosReis

50.000 Yes Semi-sub P-56, TLWP P-61, mod-ernization of 3 drill ships for Nobleand BGL-1

S P l Wil S G já 10 000 S l l

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