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Market Analysis Report:

Brazil’s Clean-Tech Market

Presented to: Israel Export & International Cooperation Institute for the Shavit Project

December 2009

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Table of Contents

Executive Summary 3

1. Market Overview 5 1.1 General 5 1.2 Market Structure 6

Water Management 7 Water Availability 7 Warer Waste 9 Waste Management 9 Alternative Energy 10 Solar Energy 11 Wind Energy 12 Wind Potential in Brazil 13 Biomass & Biofuels – General Information 14 Electricity Generation in Brazil 16

1.3 Main trade associations 17 Major players 17

1.4 Trend Analysis & Growth Potential 18

2. Regulatory Overview and Key Government related issues 19 Taxation Issues 21

3. Potential Opportunities 23 3.1 Major trade shows 26

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Executive Summary

The Brazilian Clean-Tech market presents various great business opportunities as well as opportunities for contributing on improving the country´s environmental situation. The economy and the population are growing considerably fast. Governmental publications represent an official growth rate of 5% a year starting at the year of 2010. This growth requires the development and substantial investment in the country´s infrastructure and energy supply systems. The sectors involved in the Clean-Tech market are regulated and administrated by Governmental agencies which are working at the federal level, those agencies delegate to each state or municipal body legislation and executive powers in their respective region. Due to this it is very important when preparing a penetration strategy either with products or services that will work with these markets to have good relations and communication with governmental agencies, to receive their support and assistance, in order to participate in their programs, bids, incentives etc. Highlights of current situation are:

• About 25% of the Brazilian municipalities have shortage or even lack of water • Almost 10 Million inhabitants do not have access to potable water • 51% of the Brazilian urban population does not have collected sewage, which

corresponds to 74 million people • Just 32% of them have treated sewage, which means 98 million people without the

service.

It is also important to mention, although it is already a very well known problem, the water distribution system. Many isolated regions and the arid and semi-arid part of the country have tremendous shortages, therefore the inhabitants are not just lacking water supply but also electricity power, as this is the main source of electricity generation. As mentioned before the population is growing as well as the industry and other sectors. To feed current and the upcoming demands of those markets which are in tremendous growth paths, it is necessary to improve and increase the energy supply. There is the desire and the national trend to go green and to use more renewable sources, therefore increasing the number of clean source generation plants, as hydroelectric, biomass and Aeolian. The Solar market also provides many opportunities as it is has not been well explored and lately more and more municipalities are mandating implementation of Solar systems for new constructions and other infrastructure related project.

Regarding the matter of Biomass and Biofuels, the market grew 21% in the last years, accounting for the second position in the array of national electricity and according to the National Energy Balance the tendency is that it will continue increasing, as not just the Brazilian market is utilizing the product, but also foreign markets as the North American and the European.

There are specific opportunities in measuring and monitoring equipment for water and waste treatment stations, chemical and non chemical water treatment, filtration processes, laboratory equipment, irrigation systems, pipe cleaning and leakage detection, water reuse and industrial effluent systems.

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In the area of Alternative energy, there are many projects for different types of generation plants. As stated in the different Energy sub-sectors the potential and the demand are here, the only thing missing are players to come and take these opportunities by investing in the specific area and/or bringing their know-how and combining their efforts with local partners to benefit from the joint work.

It is important to say that in the market there is place for innovative technologies and for consultancy services as for basic technologies. The market is well provided and manufacturing costs in Brazil are cheap, consequently making foreign products more expensive and not attractive. Nevertheless, there is huge potential for Israeli companies which are extremely well known for their advanced knowledge, technologies and industry professionalism in the Clean-Tech sector, turning Israeli products & services very attractive, with huge sales potential, if a correct market penetration strategy is applied.

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1. Market Overview

• The government has made a significant effort to promote the production of non carbon fuels, to reduce levels of energy waste and improve national water mangement.

• Rapid urban development is taking place in Brazil and has put increasing demand pressure on the local environmental goods and services sector.

• Water resources in Brazil are an area which falls in the scope of the Ministry of Environment

• The Brazilian territory allocates approximately 15% of the whole amount of sweet water in the earth.

• Around 30% of treated water is lost due to spout on the street. • Brazil is part of the group of countries where electricity production is massively

generated from hydroelectric plants and a very small fraction from other sources as wind energy and Biomass for example.

• Biomass is one of the sources for power generation with the greatest growth potential

in the coming years

1.1 General

During the past decades we have witnessed the development of the emerging countries, mainly of the members of the BRIC´s, whose economies have continuously grown in all sectors and which are rapidly recovering from the financial crisis that hit the whole world´s economy. In order to feed these large economies which are also very industrial and agricultural driven, it is necessary to have a very efficient and controlled system of energy supply. At the moment the National Energetic Balance shows the following distribution:

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Knowing the amount on energy needed by each sector, it is important to look at the sources that provide for it:

This scenario came about after a combination of economic reforms, privatization, urbanization, a growth in environmental policies and awareness of the environment, which supported the growth of environmental markets in Brazil since the 1980s. In the mid 1990s Brazil adopted an economic stabilization plan (the Real Plan) and embraced trade liberalization, deregulation and privatization.

Import tariffs were reduced from over 40% to approximately 14% and, since 2001, imports have been about 13% of total GDP, which has grown rapidly albeit with some wide fluctuations. Brazil receives a significant amount of foreign direct investment (FDI). In the last years, according to UNCTAD, Brazil was one of the largest recipients of FDI in the world, increasing the amount from US$18.8 billion in 2006 to US$37.4 billion in 2007. In 2002 it was estimated that US$3 billion of direct investment was made by foreign businesses in Brazil in environmental technologies alone.

The government has made a significant effort to promote the production of non carbon fuels, to reduce levels of energy waste and improve national water mangement.

1.2 Market Structure Segment Definition

The topic of Clean-Tech and Water Management by definition refers to knowledge-based products or services that improve operational performance, productivity, or efficiency while reducing costs, inputs, energy consumption, waste, or pollution. Known and general examples of those are energy efficiency, selective catalytic reduction, non-toxic materials, water control, bio fuels, solar, geothermal and wind energy and others. Taking into consideration the nature and relevance of this analysis and being the main target of this study the Brazilian sphere of applications, the potential is found in the following sectors:

• Water Management • Waste Management • Alternative Energy • Bio fuels

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Market structure

The most recent studies found, show that in 2007, the Brazilian market for environmental goods and services (EGS) (including equipment, engineering, consulting services, and instrumentation associated with water pollution control and cleanup projects) was estimated at approximately US$4.9 billion, according to the US Commercial Service.

A presentation of the breakdown of this figure into the various EGS sectors:

Sub-sector Market Size 2007 (US$billion)

Water utilities 2,3

Industrial sector 0,3

Urban cleaning and public waste management 2

Private sector investments 0,5

Air Pollution Control 0,4

Rapid urban development is taking place in Brazil and has put increasing demand pressure on the local environmental goods and services sector. This has been reinforced by the introduction and strengthening of environmental policies and regulations. The Environmental Crimes Law increased fines and other punishments for failure to comply with environmental regulations.

Water Management

The area of Water resources in Brazil falls in the scope of the Ministry of Environment. The Minestry established the ANA (Water National Agency) which controls and regulates the sector at a national level. Simultaneously each Brazilian state has its own entity managing, regulating (according to national standards) and conceding the resources and services of its region, meaning 26 state water companies. Each company can have any contractual agreement with other private or public entities, as delegating services to third parties. In 2005 the Federal Government presented a bill to Congress in order to establish a regulatory framework for the water sector to support its development. At the same time, a program called “Sanitation for All” was introduced which enabled municipal and state governments, concessionaires and PPP sanitation companies to bid for resources.

A new Law 11455, approved in 2007 as well as the Public Consortium Law 11107/05 and funding for a Program for Accelerated Growth (PAC) are expected to contribute to a rise in investment in sanitation.

Water Availability

When the matter is water resources, Brazil is a very privileged country. The Brazilian territory allocates approximately 15% of the whole amount of sweet water in the earth, 80% of this amount is located in the Amazon. It’s in this uninhabited region that it the biggest river basin in the world is found, with 6 million square kilometers, covering, apart from Brazil, Bolivia, Peru, Ecuador and Colombia. The second biggest basin, the Platina, it is

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also partially located in Brazilian territory. The rest of the hydrous potential is distributed disproportionately along the country as it is seen in the following graph, where we see 68% of water availability in the north but just 7% of the population lives there, on the other hand, the northeast region where 29% and the southeast where 43% of the whole population live, have only 3% and 6% of water available respectively.

In the national territory, these resources are utilized for Urban Supply, Industry and mainly for Agriculture as shown below.

As seen, despite this abundance, the biggest urban concentrations are situated far from the big rivers, like the São Francisco, Paraná and Amazon; therefore, one can see that the availability of large water sources does not guarantee the supply to the whole population. This factor raised plans for implementation of projects as the transposition of the Sao Francisco river, where the goal is to transfer less than 2% of the volume of the river to other basins of the region, in order to use the water that would end up in the sea to provide for the semi-arid regions of the state of Bahia,Pernambuco, Piaui, Sergipe Alagoas, Paraiba, Rio Grande do Norte and Ceara, or the planning of desalination projects (although not well developed yet) to improve the potable water availability in regions where there are shortages.

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Water Waste

To worsen the above mentioned situation, there is as lot of waste of water. Around 30% of treated water is lost due to sponut on the street. The state of Sao Paulo wastes 10m³ of water per second, which could provide for aproximetely 3 million people per day. Apart of it, it is necessary to mention, bad cultural habits as leaving the tap opened, endless showers or cleaning the side-walk with water-jets. According to the calculations of the Ministry of Planning, up to 40% of the 10,4 million litres distributed annually are lost.

Another problems is the concentration of inhabitants in the cities, population growth is currently bigger than the capacity of good quality water supply.

Brazilian companies involved in EGS are regarded as competent but lacking in the technological advancement of industrialized nations. SABESP is the only company from a developing country which is in the world’s top 50 environmental companies. Brazilian companies are often willing to invest and are looking for new technologies in EGS – especially in water supply and waste.

The investment required for maintaining water and sewage is estimated at US$4 billion a year for the next 10 years at least and the market size was estimated to be US$2.3 billion in 2008 with a predicted growth rate of 15 %, according to the US Commercial Service.

Waste management

In 2007 the last studies were performed, concluding that the market size for solid waste management was estimated to be US$2.5 billion, with Solid waste treatment contributing with an estimated business potential of US$330 million a year. Estimates of the amount of domestic solid waste that is produced daily range from 60,000 tons to 90,000 tons. Only 70% of municipal waste is currently collected and only 23% of this is disposed in controlled or sanitary landfills. The remaining 76% is disposed of in untreated landfills. This lack of landfills constructed in Brazil and the quality of existing landfills varies and includes open dumps. There have been cases of waste contamination of drinking water and children being hospitalized due to poor sanitation. States are the main provider of solid waste disposal. However, they lack the capacity to provide treated waste disposal across the country and there is limited environmental enforcement. Consequently, the state is seeking the services of private companies. The public sector is prepared to pay a fee to private companies in exchange for the provision of solid waste services. The government is interested in incineration and there is a possibility that legislation will be developed to support this. Other options are using these wastes for energy generation.

Recycling is supported by the state. Out of the 5,507 municipalities in Brazil, 3,593 have some form of recycling service program. 400,000 tons of glass out of 1,297,000 tons produced was recycled per year and about 10.3 billion aluminum cans out of 10.7 billion produced were recycled. Similarly, just 24 million tires out of 54.5 million produced were adequately recycled. There is a particular issue with used tires. Although imports of used tires are currently illegal, there is an illegal supply arriving through Paraguay and Uruguay. The country has 100 million used tires that require safe disposal. For this purpose, three recycling units have been established to solve the issue.

Legislation on the environment is being developed. This legislation will cover all aspects of waste from generation. The producers of waste will be made to take responsibility for its generation.

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There is already competition in Brazil from companies with the capabilities of constructing landfill. Opportunities exist in the design and construction of waste to energy plants especially with regard to equipment supply and the development of new technologies – recycling technologies for waste electrical/electronic equipment.

Alternative Energy

Brazil is part of the group of countries where electricity production is massively generated from hydroelectric plants and a very small fraction from other sources as wind energy and Biomass for example. These plants correspond to 75% of the installed national power, which produce 93% of the required electrical energy.

The following table provided by ANEEL shows the different type of plants, how many of them exist and are active, their planned capacity, what they are really generating and their percentage of the total.

Plants in Use

Type Number of

Plants Plant

Capacity (kW) Plant Current Use

(kW) %

Hydroelectric Generation

Plant 302 171.354 169.753 0,16

Aeolian Electricity Facilities

36 605.280 602.284 0,57

Small Hydroelectric

Facilities 353 2.971.609 2.917.752 2,76

Solar Photovotaic Generation

1 20 20 0

Hydroelectric Energy Plant 163 75.250.127 75.210.474 71,02

Thermoelectric Plant 1.282 27.289.397 24.986.567 23,60

Thermonuclear Plant

2 2.007.000 2.007.000 1,90

Total 2.139 108.294.787 105.893.850 100

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The contribution of each source to the total electrical energy production is shown in the following table:

Electricity Supply Distribution

Source 2007 2008 2009*

Non-renewable Energy 10,8% 14,6% 18,2%

Natural Gas 3,5% 6,6% 10,6%

Oil (Petrol) Derivates 3,0% 3,3% 4,5%

Nuclear 2,8% 3,1% 1,8%

Coal & Derivates ¹ 1,5% 1,6% 1,3%

Energia Renovável 89,2% 85,4% 81,8%

Hidráulic 84,0% 80,0% 76,8%

Biomass ² 5,1% 5,3% 4,6%

Aeolian 0,1% 0,1% 0,4%

¹ Includes Coal Gas

² Includes firewood, Sugar-cane bagasse, lye and other recoverable *Estimates of ANEEL (National Electric Energy Agency) 2009

Solar Energy

Currently in the range of various Solar Energy avail processes, solar water heating and photovoltaic electricity generation are the most used systems in Brazil. The first is more concentrated in the South and Southeast regions, due to climatic characteristics, and the second, in the North and Northeast regions, in communities isolated from the electricity grid. Recently many projects, financed by private environmental companies or by the states, are looking to provide this service in order to improve the region´s life conditions as well as their economic development. Apart of the technical, scientific and financial support received from the different entities and Brazilian institutions (MME – Ministry of Mines & Energy, Eletrobras/CEPEL and universities), these projects have also received support from international bodies, particularly from the German Agency of Technical Cooperation (GTZ) and National Renewable Energy Laboratory. In the area of solar energy, solar water heating also became very important in the South and Southeast region, mainly for the residential sector, as a replacement for the high cost electric energy consumption.

The solar water heating sector is currently experiencing rapid growth (32% in 2008) due to a system of municipal laws (the leader being São Paulo) directed at increasing the use of such systems due to a shortage of solar water heaters and installers. Today the capacity for the manufacturing of solar water heaters is 135,000 systems per year for all of Brazil, where the pace of construction in São Paulo alone is at 44,624 (2008). In addition to specific laws, Brazil is encouraging customers by providing financial incentives through its Federal Banks.

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From 28th of July 2006, in the state of São Paulo there is a law that obligates the installation of a solar water heater on any new building in accordance with the following: ° Civil construction: Any house in which a solar water heater can be installed will obligate

the contractor to establish an infrastructure for solar water heaters. ° The contractor will be obligated to install a solar water heater wherever there are three

or more hot water points. ° Commercial construction: Should there be the need to use hot water, the installation of

solar water heaters will be mandatory.

Electricity suffers from high consumption (20%) at peak hours, which causes the electric companies and its clients to waste a lot of electricity capacity. The gas suffers from price increases (due to the rise in oil prices and the recent nationalization in Bolivia, of which Brazil was the main victim).

Because of world awareness of ecological issues, and specifically in Brazil, which is known for its special connection to this topic, there is a high degree of importance attached to these products (solar water heating and photovoltaic electricity generation). On top of it, the Brazilian energy market has been suffering from electrical problems of high usage during peak hours and from stealing of electricity (underprivileged, impoverished residents who are not able to pay their electricity bills). It is also important to mention that cities located far from urban poles lack electricity supply, therefore using small emergency generators, instead of using solar generators that could better provide for their needs at more effective and efficient levels.

Wind Energy

In Brazil, although wind power has traditionally been done with the use for pumping water, measurements of wind held recently in various parts of the country, indicate the existence of a huge wind power potential, still to be explored.

Great attention has been directed to the State of Ceará for having been one of the first places to carry out a survey program of wind power through wind action with modern computerized anemographs. However, it was not just off the coast of the Northeast that areas of high wind potential have been identified. In Minas Gerais, for example, a wind farm is in operation since 1994 in one place away more than 1000 km from the coast with excellent wind conditions. (CEBRAPA)

According to CEPEL (Electric Energy Research Center), as of 2009 the installed capacity in Brazil is 547 MW, distributed in the 13 stations with wind turbines of medium and large size connected to the power grid. Moreover, there are dozens of small wind turbines operating in isolated places on the conventional network for various applications - pumping, battery charging, telecommunications and rural electrification. Unfortunately the Brazilian potential is not even close to being utilized as the estimated national gross potential is 143GW.

According to studies made by the ELETROBRÁS in 2008, the cost of electricity generated by new hydroelectric plants to be built in the Amazon region will be much higher than the current. Almost 70% of the current projects should have higher costs than the cost of energy produced by wind turbines. Additionally, another advantage of wind plants in relation to hydroelectric plants is that most of the area occupied by the central power can still be used (for agriculture, livestock, etc.) or preserved as natural habitat.

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Wind power can also resolve the dilemma of the use of water from the Rio São Francisco in the Northeast (water to generate electricity versus water for irrigation). Major irrigation projects along the river which involves the transfer of water from the river to other areas, can cause a major impact on the volume of water in the reservoirs of hydroelectric plants and thus affect the energy supply for the region. However, the highest wind speeds in the northeast of Brazil are just as powerful as the flow of water from the Rio São Francisco. Soon, the wind farms installed in the northeast will produce large amounts of electricity which will avoid having to use water from the river San Francisco.

Wind potential in Brazil

The analysis of wind data from various locations in the Northeast confirmed the characteristics of the existing trade winds in the region: high average wind speeds, little variation in wind directions and low turbulence throughout the year. Given the importance of characterizing the wind resource in the Northeast, the Brazilian Center for Wind Energy - CBEE, with the support of the National Electric Energy Agency - and the Ministry of Science and Technology - MCT in 1998 launched the first version of the Wind Atlas of Northeast Brazil (WANEB - Wind Atlas for the Northeast of Brazil) with the main objective of developing atmospheric models, analyzing data from wind farms and produce reliable maps for the region. A preliminary map of winds in Brazil generated from computer simulations with atmospheric models is shown in the figure below

As perceived from the map the Northeast coast, central east and southern regions of the country are the most appropriate for the establishment of wind projects, that could provide enough supply for the whole region and diminishing the dependancy on hydroelectric generation of the Sao Franciso river.

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Biomass & Biofuels

General Information Biomass is one of the sources for power generation with the greatest growth potential in the coming years. Both in the international and domestic market, it is considered one of the main alternatives to diversify sources of energy and the consequent reduction of dependence on fossil fuels. It is possible to obtain electric power and biofuel such as biodiesel and ethanol, whose consumption is increasing as substitute for petroleum products such as diesel and gasoline. But if biomass is currently an alternative energy edge, has historically been limited in scope in the world energy grid. Contrary to what occurs with other sources such as coal, hydro or oil, which have not been recorded accurately. In Brazil, in 2007, biomass (mostly sugarcane), with a share of 31.1% and in 2008, with participation of 31.5% in the energy sector, was the second major source of energy, surpassed only by oil and oil products. It held the same position among the sources of internal electrical energy, to account for 5.1% of supply in 2007 and 5.3% in 2008. It was only surpassed by hydroelectricity, which was responsible for producing 77.4% of the total supply, according to the National Energy Balance (BEN) in 2008. Moreover, in the international market, Brazil stands out as the second largest producer of ethanol which is obtained from sugar cane, having a similar energy potential and much lower cost than ethanol from countries like the United States and regions such as the EU. Brazil produces 33% of the whole world production. According to the BEN, in 2008 the Brazilian production reached 10,139 million tons (equivalent tons of oil) against 8.612 million tons in 2007, representing an increase of 17.7% as shown in the chart below:

Ethanol Production in

Equivalent tons of Oil

2008 2007 2006 Difference 08/07 Difference07/06

10.139 8.612 6.395 17,70% 34,70%

Biodiesel Production is also increasing and, if part of it is directed to domestic supply, the other one is exported to developed countries, as members of the European Union. Since 2004, the activity is favored by the stimulus from the National Program for Production and Use of Biodiesel (PNPB), established in December 2003 by the Federal Government. The expansion of ethanol comes from both the increasing activity of industrial sugarcane as technology and experience gained with the Pro-Alcohol - the federal program launched in the 70s, in order to stimulate the replacement of gasoline with alcohol due to the oil crisis, that was turned off years later. Another stimulus was the inclusion in the Growth Acceleration Program (PAC), launched by the Federal Government in 2007, works whose investments exceed $ 17 billion. In the period of 2007 to 2010, according to the PAC, it was invested and it still are being invested, R$ 13.3 billion in the construction of more than 100 ethanol and biodiesel plants and other R $ 4.1 billion to build two pipelines: one from Senator Canedo (GO) and São Sebastião (SP) and another between Cuiabá (MT) and Paranaguá (PR).

The production of large-scale electric power and biofuels is related to the agricultural biomass and the use of efficient technologies. The pre-condition for its production is the existence of a strong agricultural industry and large plantations, whether it is soya, rice, corn or sugarcane. Biomass is obtained by processing the waste of these cultures. Thus, the corn can be used as raw material for energy, cobs, stems, leaves and straw. Just in flex fuel cars (which may use both, gasoline and ethanol) ethanol consumption increased

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more than twice in the last seven years, surpassing the 60 million liters in 2007. In addition, timber has been, over the years, a traditional and important raw material for energy production.

There are several techniques used to transform raw materials into energy. Each gives rise to a certain derivative. There is, for example, the direct combustion to obtain the heat. It occurs in stoves (cooking food), furnace (metallurgy) and boilers for steam generation. Another option is pyrolysis or carbonization. The main final product is charcoal, but pyrolysis also gives rise to tar and acid pyro-wood. The charcoal has energy density two times higher than the source material and firing at much higher temperatures. In gasification, through thermo-chemical reactions involving hot steam and oxygen, it is possible to transform the solid fuel gas (a mixture of carbon monoxide, hydrogen, methane, carbon dioxide and nitrogen). This gas can be used in internal combustion engines and turbines to generate electricity. Moreover, it is possible to remove the chemicals that harm the environment and human health - which turns into a clean gasification process.

A process widely used in the treatment of organic waste is anaerobic digestion which is the decomposition of material by the action of bacteria and occurs in the absence of air. The final product is biogas, consisting primarily of methane (CH4) and carbon dioxide (CO2). Already in agribusiness, the most common is fermentation, in which the sugars from plants such as potatoes, corn, beet and cane sugar are converted to alcohol by microorganisms (usually yeast). The end product is ethanol in the form of hydrous alcohol and to a lesser extent the anhydrous (i.e. less than 1% water). If the first one is used as pure fuel in internal combustion engines, the second is mixed with gasoline (in Brazil, the proportion of 20% to 22%). The solid residue of the fermentation process can be used in power plants to produce electricity. Finally, the transesterification is the reaction of vegetable oils with an active intermediate product obtained by the reaction between methanol or ethanol and a base (sodium hydroxide or potassium). Derivatives are the glycerin and biodiesel. Currently, biodiesel is produced in Brazil from the palm and babassu (northern region), soybean, sunflower and peanut (South, Southeast and Midwest) and castor bean (semi-arid), among other raw materials of plant origin.

Availability, Production and Consumption

Although Germany is the largest producer of biodiesel, the EU has not achieved in recent years, the goals of expanding domestic supply. Thus, it became an importer of products from countries like Brazil, Argentina, Indonesia and Malaysia.

The ethanol was one focus of the negotiation of the last Doha round of the World Trade Organization in July 2008. A proposal made to Brazil for exports to the European Union till 2020 was a share up to 1.3 million tons per year with an import tariff of 10%. For higher volumes, the rate of the import tariff would increase to 35%. The Foreign Ministry considered the proposal insufficient, since the current exports to the EU reached 900 million tons per year, despite of rates of 45%. Before the Doha Round, Brazil and the United States had also started talks to try to regulate international trade of the product.

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Electricity Generation in Brazil The use of biomass as a source of electricity has been growing in Brazil, mainly in cogeneration systems (in which you can obtain thermal and electrical energy) of the industrial and energy service sectors. In 2007, it was responsible for supplying 18 TWh (terawatt hours), according to the National Energy Balance (BEN), 2008. This volume was 21% higher than in 2006 and ranked second position in contribution to national electricity generation. In respect of internal sources, biomass was only surpassed by hydroelectricity, with participation of 85.4% (including imports). According to data given by the National Energy Agency (Aneel), in 2009 we had 344 biomass-fired power stations in the country, corresponding to a total of 5.97 MW (megawatts) installed. The plants are supplied as follows:

Type Number of Plants Generation in kW

Sugar Cane Bagasse 282 4.458.515 Black Liquor 14 1.145.798

Timber 33 295.017 Biogas 8 42.272

Rice Skin 7 31.408

Several factors contribute to a scenario of expansion. One is the volume ever produced and the potential for increased production of cane sugar, stimulated by the growing consumption of ethanol. In 2008, it was the second largest primary energy source of the country where the derivative of sugarcane production accounted for 41.3 million equivalent tons of oil (eto), an increase of 9.1% in relation to 2007, since the total production was 37.8 million eto.

According to estimates by Unica (Sao Paulo Sugarcane Industry Association), in 2020 the electric power produced by the sector may represent 15% of the Brazilian matrix, with production of 14,400 MW (or MWh average production during the year), considering both the energy potential of straw and bagasse as well as the estimated production of sugar cane, which is expected to double in comparison to 2008, and reach 1 billion tons. Unica estimates that by 2012, 86 production units will be built with investments of U.S. $ 17 billion.

Sustainability and Development

Biomass can be considered as an indirect form of solar energy. This energy is responsible for photosynthesis, the basic biological processes that preserves the life of plants and production of chemical energy that is converted into other forms of energy or energy products such as charcoal, ethanol, gas fuel and vegetable oil fuel, amongst others. Photosynthesis also allows the release of oxygen and capture of carbon dioxide (CO2) the main agent of the greenhouse effect. Therefore, contributing to the containment of global warming.

If used for energy generation by traditional means, such as cooking and combustion, biomass is presented as an energy source of low efficiency and high potential for gas emissions. Thus its utilization depends upon the development of technologies for energy production and management techniques of the raw material. The use of biomass, for example, is traditionally associated with deforestation. But, energy forests can be grown for the sole purpose of producing firewood, charcoal, black liquor and briquettes for industrial use.

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In the case of sugarcane plantations, the use of waste for electricity production benefits the environmental aspects of harvesting. The traditional method is manual harvesting accompanied by the burning of straw that, besides producing the emission of large volumes of CO2, constitutes a risk factor for human health - being responsible, including for the occurrence of large fires in the surrounding areas. However, in order to increase productivity, several mills have chosen mechanical harvesting, which does not need the burning. Sustainable use of bagasse for the production of electricity by power plants, moreover, balancing CO2 is virtually zero because emissions from the activity are absorbed and fixed by the plant during its growth.

The main downside aspects are the interference with the natural soil type and the possibility of forming monocultures in vast expansions of land - which would compete with food production. These variables have been circumvented by techniques and processes that increase the productivity of biomass, thus reducing the need for growth of planted areas. Just as an example, according to Unica, Brazil can produce 6.8 thousand liters of ethanol per planted hectare. In the United States for getting ethanol from corn, the ratio is 3.1 thousand liters per hectare. Additionally according to reports of the National Energy Plan 2030, the agribusiness sector of sugarcane has great importance in generating jobs to take on, directly, about a million people, of which 80% is for agriculture. Sugarcane is the crop that creates the most employment for the cultivated area.

1.3 Main Trade Associations

• ABEEolica – Brazilian Aeolian Energy Association • ABENS – Brazilian Solar Energy Association • ABEAMA – Brazilian Renewable Energy & Environment Association • ABAE – Brazilian Water & Energy Association • ABCMAC – Brazilian Rain-water Capture and Management Association • ABAS – Brazilian Underground Waters Association • AESBE – State Basic Sanitation Companies Association • ABCON – Brazilian Private Concessioners of Water and Sewage Public Services • ABRAVA – Brazilian Association of Manufacturers of Refrigeration, Heating, Air Conditioning and Ventilation Equipment Major Players The following are the major players for each of the sectors:

Water:

• Sabesp – A company characterized by mixed economy and open capital, Sabesp finds in the Government of the State of Sao Paulo its main shareholder and has its shares traded in the New York and São Paulo Stock Exchanges. Today, Sabesp supplies 60% of the State's population, providing services to 366 out of the 645 cities and supplies treated water to 7 others that take care of their own distribution. It is important to mention that Sabesp announced that it will start a technical cooperation with “Mekorot”.

• Ecosan – Absolute leader in primary and secondary treatment of domestic and industrial effluents. The company has more than 60.000 installed units in Brazil and Latin America, offering diverse products, systems and services for water treatment, sewage, fluid separation, maintenance and consultancy among other.

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Energy (Including Biofuels & Biomass):

• Eletrobras – Open Capital Company, controlled by the Brazilian government, acting in the areas of generation, transmission and distribution of electric energy. The company leads a system composed of 12 subsidiaries, a research Center and half of the capital of Itaipu Binational.

• Cosan – The Company is the largest ethanol producer, has 23 production units and 2 under contruction, 4 refineries and two terminals at the port and processing capacity of 60 Million tons/year.

• Louis Dreyfus Commodities Bioenergia - the Brazilian subsidiary of the French commodities giant, is the second-largest sugar cane milling group in the world after Cosan, with 13 plants located in the main producing regions of brazil, with processing capacity of 40 Million tons/year

Solar:

• Transeen – Leader in the national market of water heaters and one of the biggest of Latin America with distributing centers in Chile and Peru. Exporting to central America and various african countries. Posesses the most important national and international qulity certificates.

• Heliotek – Active in the market of solar heaters for water and heat exchangers for swimming pools, solar collectors and solar reservoirs,

Aeolian:

• Enercon - Wobben Windpower Ind. e Com. Ltda. – first producer of big wind

turbines in South America. Created for producing components and wind turbines for the national market and for exports, besides of planning, installing, operating and providing technical assistance services for Aeolian Plants.

1.4 Trend Analysis & Growth Potential

Nowadays in the country, about 45% of the Energy Supply is provided from renewable sources which are Hydraulic Energy and Electricity, Wood and Vegetal Coal, Sugar-cane products and other renewable, participating with 13,8% , 11,6%,16,4%, 3,5% respectively. Nevertheless the usage of Non-renewable sources had not yet reached the desired status, that is the reason why the authorities, organizations and programs are focusing on decreasing the dependence on Oil and its derivatives, Natural Gas and Mineral Coal and its derivatives which participate with 36,7%, 10,3% and 6,2% respectively. This is the reason why governmental and private institutions want to prioritize the use of renewable energy, and, in order to do this they mainly want to increase the utilization of Biodiesel and ethanol, therefore substituting liquid fuels derived from Oil (petrol), especially the medium (diesel) and light (gasoline) derivatives. Additionally, in the field of diesel production, the scenario contemplates the entry of vegetal oils as primary energy sources. Overall, the participation of primary renewable sources such as Aeolian, Solar and Biomass shall increase significantly including the use of urban residuals for generation.

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However, the following factors are still prevailing characteristics in the Brazilian energy sector:

• Electrification Increase • Continuous Natural Gas expansion • Deeper Penetration of renewable liquid fuels (ethanol and biodiesel) instead of Oil

derivates, mainly used in the agro-industry and transportation sectors • Increase in the usage of mineral coal, as a reflex, mainly, to the iron and steel

industry expansion/development

In light of these factors, over the next decades, Oil derivatives should remain at the top of the list of energy sources, although decreasing its share to a level around 34% - 36%, depending on the scenario, having in mind that part of the diesel will come from vegetal oil processing. Electricity will be the second most used source, increasing its participation to 22% - 24%. Sugarcane products will also gain some share, as a result of ethanol usage increase to 14% from the current 4,8%, and natural gas tends to supply approximately 8% of the final energy consumption. Biodiesel, depending on the scenario, shall contribute with a percentage varying between 1,5% and 4%.

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2. Regulatory Overview and Key Government related issues

• Most state water and sewer companies are mixed public-private companies with the majority of shares owned by the respective state government.

• The market in Brazil is liberalized since the beginning of the 2000´s, allowing both local and foreign companies to enter the market and become a provider. Regulatory Issues

Water Sector

According to the Brazilian constitution the provision and regulation of water and sanitation services is the responsibility of the country’s 5,560 municipalities. However, state water and sewage companies in each of Brazil’s 26 states are in charge of water services in about 3,887 municipalities. 14 Brazilian states have established regulatory agencies for public services that cover, among other sectors, water supply and sanitation.

Most state water and sewer companies are mixed public-private companies with the majority of shares owned by the respective state government. Three state water companies -Sabesp in Sao Paulo, Copasa in Minas Gerais and Sanepar in Paraná - have floated shares in the Brazilian stock market and one of them -Sabesp - also at the New York Stock Exchange. One state company, Saneatins in Tocantins, is majority-owned by the private sector with the state government owning only a minority of shares. Some state companies operate under concession contracts with the municipalities, while others operate under the authority of state governments. In some cases municipalities have challenged the legality of service provision by state companies that do not have concession contracts with municipalities.

Alternative Energy

In the Brazilian Energy Sector, which includes biofuels and biodiesel, the responsible entities in charge of energy policy are the Ministry of Mines and Energy, the National Council for Energy Policy (CNPE), the National Agency of Petroleum, Natural Gas and Biofuels (ANP), and the National Agency of Electricity (ANEEL). The market in Brazil is liberalized since the beginning of the 2000´s, when the monopoly over oil resources was abolished, providing also the liberalization of the other sources of energy. This has allowed both local and foreign companies to enter the market and become a provider, as far as complying with the necessary sector standards and requirements). However, the government retained monopoly control of key energy complexes, such as the major hydroelectric plants, and regulates the price of certain energy products. Current government policies concentrate mainly on the improvement of energy efficiency, in both residential and industrial sectors, as well as on increasing the use of renewable energy for energy generation.

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Taxation Issues

Norms and regulation of products manufactured in Brazil:

The manufacturing of equipment must following the following parameters:

• ABNT Norms (Brazilian Technical Norms Agency), for international parameters (IEC – international eletrotechnical commission)

• Certification (INMETRO – National Institute of Metrology Standardization and industrial quality)

Main Brazilian taxes:

Tax Base for Calculation and/or taxable even

Rate

Corporate tax - IRPJ Taxable income, presumed profit or arbitrated 15%

Additional to IRPJ Taxable Income, presumed profit or arbitrated

10% over the installment exciding R$ 240.000,00 per year

Excise Tax - IPI Price of sale when exiting the industrial establishment or when importing

Varies, according with the classification of the product

Tax on Financial Operation- IOF

Credit operations, exchange, insurance and on securities titles

Varies, according with the classification of the product - 0% to 5,38%

Social contribution on net income– CSL

Adjusted Net Income 9% or 15%

Social Integration Program- PIS

Revenue 1,65% on non-cumulative revenue and 0,65% on cumulative revenue

Tax for social security financing – COFINS

Revenue

7,6% on non-cumulative revenue and 3% on cumulative revenue and 4% on financial institutions

Contribution for Intervention in the Economic Domain - CIDE

Payment of royalties and payment for foreign technology transfer and technical service provision

10%

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Tax Base for Calculation and/or taxable even

Rate

Value-Added Tax on Sales and Services- ICMS

Value of the operation

7% to 33%

Services Tax- ISS Price of the services 2% a 5%

Import Duty - II Customs price of the product (CIF) 0% to 35%

Export duty - IE

National or nationalized products out flowing the Brazilian territory, indicated by the chamber of commerce – CAMEX

Rule: 30%, other rates might be charged, with a maximum of 150%, however most of the products have zero rates

Taxes that fall on imported products and services:

Import duty - II:

Calculated over customs value, with variable rates.

Excise tax - IPI:

Calculated according to IPI Table.

VAT on Sales and Services – ICMS:

Rate differs, depending on the state where the unloading is done.

PIS - Import (Law nº 10.865/2004):

Rate of 1,65%, existing specific rates for specific products

COFINS - Import (Law nº 10.865/2004):

Rate of 7,6%, existing specific rates for specific products

ISS (Tax on services of any type)

Rate of 5% on imported services from abroad, specified of the Complementary Law 116/2003.

IOF – Tax on Financial Operations

Rate of 0,38%.

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3. Potential Opportunities

The following represents the list of projects released by state entities. However the information presented below is in the meanwhile the only published and available data:

Project Location Investment Agency in charge Obs

Aeolian Plant São Gonçalo do Amarante - Ceará – Northeast

$135.000.000,00 Secretary of Infrastructure

60MW electricity generation, financing not defined

Hydroelectrics Piaui – Northeast $1.430.000.000,00 Secretary of Infrastructure

5 Hydroelectric plants

Sanitary Sewage Piaui – Northeast $39.347.000.000,00 Waters and Sewage of Piaui S/A – AGESPISA

12 sewage systems of collection & treatment

Sanitation São Paulo - Southeast

TBD Government of Sao paulo & Sabeso

Enlarging 5m³/s the potable water treatment system in Taiacupeba

Microempa Rio grande do Sul $55.000.000,00 Government of the state of Rio Grande do Sul which is also sponsoring the project

5 Units processing 100T/day, generating termic & electric energy

Biodiesel Plant Sergipe – Northeast $95.000.000,00 Secretary of economic and science &technology development of the state

Capacity of 100Million liters/year, potential partnership with Petrobras

Ethanol Plant Sergipe – Northeast $70.000.000,00 Secretary of economic and science &technology development of the state

Capacity of 80Million liters/harvest (6 month), investment of local investors

Aeolian Plant Sergipe – Northeast $58.000.000,00 CODISE - Sergipe's Company of Industrial Development and Mineral Resources

Government of the State and private groups are the investors

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Different types of Plants in ANEEL´s implementation plans to be built in the next 5 -10 years:

Plants to be constructed

Type Quantity Plant Capacity (kW)

Hydroelectric Generation 70 46.660

Tidal Power 1 50

Aeolian Electricity 45 2.139.793

Small Hydroelectric Plant 155 2.147.342

Solar Photovoltaic Generation 1 5.000

Hydroelectric Energy Plant 11 2.190.000

Thermoelectric Plant 158 13.072.522

Total 441 19.601.367

Other potential projects:

• The Pontal Irrigation Project is located in the Municipality of Petrolina, in the semi-arid region of the state of Pernambuco in Northeastern Brazil (São Francisco river valley). The Petrolina region already exports over US$ 100 million in fruit per year, largely from land under irrigation. Pontal’s location has already established logistics infrastructure for exports including three ports and highways in working condition. In addition, Petrolina’s airport, approximately 40 km away from Pontal, is already handling cargo planes shipping fruit overseas.

Pontal represents an attractive opportunity for infrastructure development companies to engage in a long-term concession to build and operate irrigation infrastructure in Brazil’s fast-growing agribusiness sector. It also represents a unique opportunity for agribusiness investors to position themselves in a region with advantageous conditions for fruit production in terms of climate and water availability and with an established logistics chain for export to international markets.

• Santa Catarina Airport – Solar Panels Project to equip Santa Catarina´s airport with photovoltaic solar generators, to serve as pilot for deployment potentially on all other relevant airport and football stadiums then for the World Cup of 2014.

• Sweet Water Project (Projeto da Agua Doce) – Dessalination Providing potable water for the population of the northeast, it is already implemented, using inverse osmosis, but they are looking for more efficient technologies and to produce the membranes for desalination.

Incentives

• The Program of Incentives for Alternative Electricity Sources (PROINFA) was set up in

2002 in response to the crisis and blackouts which incurred losses of about US$20 Billion. The program encourages the development of hydroelectricity, wind power and biomass. The program creates opportunities for renewable energy. In addition to the PROINFA program, overseas companies have the option of selling directly to companies in Brazil.

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• The Ministry of Environment has set up an environment fund called Fundo National do Meio Ambiente (FNMA). This provides financial support to small to medium sized projects in the environment sector which aim to either make use of Brazil’s natural resources in a sustainable way or to preserve and improve the natural environment. The two main agencies that fund the environmental sector in Brazil are the National Development Bank (BNDES) and the Environmental Sewage Technology Company (CETESB) – the state environment agency. There are several international development banks, including the World Bank and the InterAmerican Development Bank, which provide an important source of finance in Brazil.

• In the state of Bahia there is an incentive from the program “Desenvolve” – Incentive Program to the Industrial Development of the Government of Bahia. This incentive exonerates up to 75% of Value-Added Tax on Sales & Services on Sugar, and, with a reduction of the same tax on ethanol.

• REIDI – special system of incentive for the development of infrastructure – addresses – works in transportation, ports, energy sanitation and irrigation. This system reduces PIS, COFINS for the acquisition of machinery and equipment.

For all these incentives there are specific eligibility criteria, therefore the option of giving or not the incentive varies from case to case.

2014 & 2016 Sport Events in Brazil - Major opportunities

FIFA has embarked upon an initiative to address environmental sustainability through the Green Goal™ program – an initiative which FIFA fully expects its partners to embrace. The principal goals of the program are: the reduction in the consumption of potable water, the avoidance and/or reduction of waste, the creation of a more efficient energy system and an increase in the use of public transport to FIFA events.

These goals should contribute to the establishment of a neutral climate as far as greenhouse gas emissions are concerned. The program, which began during the preparations for the 2006 FIFA World Cup in Germany, is one that will form part of FIFA’s legacy of the 2006 FIFA World Cup and should be extended to other FIFA events, especially future FIFA World Cups.

Water A more responsible use of potable water for purposes of irrigation should be examined. Green Goal™ suggests the storage of rainwater to support the water cycle. Further potential savings could be made through the installation of water-saving technology in sanitary fittings during the construction phase.

Waste A major cost of stadium management is the removal of waste. To limit the amount of waste generated, Green Goal™ proposes the re-use of beverage containers, recycling through the separation of waste collection and the introduction of packaging-free food and merchandising products.

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Energy Energy-saving activities should be exploited in the design and construction of stadiums. Potential energy-saving areas include: the use of photovoltaic energy sources, the insulation and protection of glass on the outside of the building in order to reduce the use of air conditioning, and the use of centrally controlled building control systems to better manage energy during periods of peak demand.

3.1 Major trade shows

Trade Show Name Matter of the Event Location Date

AMBIENTALEXPO Latin America Conference & Exhibition on Environmental & Sanitation Solutions

São Paulo 27.04 - 29.04 2010

R-ENERGY BRASIL International Fair for Renewable Energy São Paulo

11.05 - 15.05 2010

FENASUCRO & AGROCANA

International Trade Fair of the Sugar and Alcohol Industry - Business and Technology Trade Fair of Sugarcane Agriculture

Rio de Janeiro 29.06 - 30.06 2010

EXPOSUCATA Latin America's most important event of the Recycling Industry

Rio de Janeiro 29.06 -

30.06 2010