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Offsets Projects

Objectives and Requirements

9th May 2007, Israel

CPC – Offsets Permanent Commission

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“Offsets are compensations agreed upon between the State and the supplier of the defense material, susceptible of contributing towards the industrial development of the Portuguese economy and the resulting economic value increase associated to the purchase.”

(Decree-Law nº 154/2006, 7th August, Art.º 1º, nº 1,

Wherein the Offsets Legal System is defined)

OFFSETS CONCEPT

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Type of Offsets:

Direct Offsets– refer to goods and services directly related to the purchased equipment (ex. local co-production of weaponry system parts which is being acquired);

Indirect Offsets– refer to military or civil goods and services unrelated with the purchased equipment – they may include IDE, technology transfer, marketing opening and other activities of confirmed added value for the industry.

OFFSETS CONCEPT

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Groups of Offsets (Decree-Law nº 154/2006, 7th August, Art. 5):

GROUP I - Direct Offsets - those connected to the purchasing object;

GROUP II - Indirect Offsets – those connected to the Defence Industry (corresponding to collaboration and/or participation in activities within the scope of the Defence Industry);

GROUP III – Indirect Offsets not connected to Defence.

OFFSETS CONCEPT

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OFFSETS NEW MODEL

OFFSETS GOALS (Decree-Law nº 154/2006, 7th August, Art. 1, nº. 2 and 3):

Lead to the development of competitive entrepreneurial abilities within international markets;

Contribute to the creation of entrepreneurial abilities within the defence industries’ sector, aiming at the national participation in the chain value associated to the systems or equipment to be purchased, or to the creation of national abilities linked to the sustainability of these systems or equipments life cycle.

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OFFSETS NEW MODEL

GOALS (cont.):

To optimize the industrial fabric capacities and to maximize the national added value production;

To promote high technology activities development with a strong involvement in the I&D+I areas, in order to be able to produce national added value on a sustainable basis;

To reinforce double-use technologies investment and maximizing the Defense Sector potential technological dissemination;

To promote adequate partnerships between national and foreign partners;

To reinforce stronger and more dynamic networks between the BTID actors and the Armed Forces branches.

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OFFSETS NEW MODEL

GOALS (cont.):

To ensure the SME’s access to the Defense Systems and Equipments large manufacturers suppliers networks;

To evolve into a logic set on the industrial participation in products and services development co-operative projects to be purchased, as a way to include the Portuguese companies into the international projects value chains and to generate synergies for the industrial consolidation process;

To ensure industrial scale economies;

To develop clusters in centers of excellence.

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OFFSETS NEW MODEL

Offsets Scope (Decree-Law nº 154/2006, 7th August, Art. 2, nº. 1):

Purchase of Defense material, in values not lower than 10 Million Euros.

Offsets Value (Decree-Law nº 154/2006, 7th August, Art. 6, nº. 1):

Value at least equal to the purchase value.

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OFFSETS NEW MODEL

KIND OF OFFSETS PROJECTS (Decree-Law nº 154/2006, 7th August, Art. 21, nº.1)

Foreign direct investment;

Technology transfer aiming at increasing the Portuguese companies competitive capability;

Partnerships aiming at including the Portuguese companies , in a sustainable manner, into the global market;

Ongoing partnerships using the national companies’ and other entities abilities, namely in I&D;

Goods and services exports and other purchases from national companies;

Goods supply and services rendering to national companies.

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OFFSETS NEW MODEL

FACTORS TO BE CONSIDERED IN THE ASSESSMENT OF PROPOSALS (Decree-Law nº 154/2006, 7th August, Art. 24, nº. 2):

The structuring effect and its sustainability;

The level of technology involved and the respective degree of innovation;

The industrial technology usage perspective;

The investment involved;

The direct or indirect creation of qualified employment;

The national technological development impact and its contribution to the products or procedures innovation processes;

The industrial specialization and the reinforcement impact in terms of markets internationalization and diversification.

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OFFSETS NEW MODEL

Commission payments for the participation in offsets or industrial cooperation programs (Decree-Law nº 153/2006, 7th August, Art. 17, nº. 2):

Established by the CPC Chairman, according to the regimen to be ruled by joint order;

Applicable upon new projects or ongoing project programs, subject to restructuring.

Spread of offsets benefits (Decree-Lei nº 154/2006, 7th August, Art.º 25º, nº 3):

For projects of over 10 M€, the beneficiary shall be compelled to subcontract, at least, 15% of the total amount to be granted.

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CPC RESPONSIBILITY FOR PNACE MEASURES

Measure 40: Optimization of the offsets processes associated to public purchases (included in the Competitiveness and Entrepreneurship Policy);

Measure 55: Allocate at least 20% of the large public purchase counterpart values to I&D and innovation projects and at least 1% of the Military Programming Law annual appropriations (included in the Research, Development and Innovation Policy).

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CPC RESPONSIBILITY FOR PT MEASURES

Measure 3-013: Elaboration and implementation of a stimulating aeronautical industry program as from the offsets programs;

Measure 3-029: Stimulate the Offsets Market;

Measure 3-072: Stimulating and managing of the offsets processes by expert teams;

Measure 3-073: Define strategic investment areas for Portugal and to define adequate technologies for those areas;

Measure 3-105: Definition of a multipliers table.

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EXAMPLES OF OFFSETS PROJECTS

Helicopters EH 101 purchasing Program:

EH 101 back fuselage manufacture - OGMA (Group I);

Technology transfer + rear ramp production for NH 90 – OGMA (Group II);

Motorcars components (plastic) manufacture for Group GKN – Irmãos Bernardes (Group III).

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EXAMPLES OF OFFSETS’ PROJECTS

Submarine Purchasing Program:

Subcontracting – submarine batteries production - Autosil (Group I);

Satellite navigation systems development - Edisoft (Group II);

Orders, co-operation, subcontracting – energy + electronics – EFACEC (Group III).

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EXAMPLES OF OFFSETS PROJECTS

Aircrafts C-295 Purchasing Program:

Design and implementation of a Drawing and Engineering Cabinet - OGMA (Group I);

Aircrafts C 130, P 3 and PUMA maintenance subcontracting, - OGMA (Group II);

Co-operation between EADS CASA and the Nova Base Consulting (Group III).

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EXAMPLES OF OFFSETS PROJECTS

Torpedoes Purchasing Program:

Integration of torpedoes battle systems – EDISOFT (Group I);

Access to new markets in the development of software within the Defense and Space sectors – Critical Software (Group II);

Access to new markets within the sector of electrical components for energy systems - EFACEC (Group III).

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EXAMPLES OF OFFSETS PROJECTS

Wheeled Armored Vehicles Purchasing Program (WAV):

Production of WAVs’ for the Portuguese Program –FABREQUIPA (Ex-GOM) (Group I);

Software developed for the Defense sector – Critical Software (Group II);

Exporting of components for the motorcar sector – door panels –ACECIA Group (Group III).

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EXAMPLES OF OFFSETS PROJECTS

F-16 Targeting Pods Purchasing Program:Type 1 — National capacity development reinforcement, integration and electronics systems’ testing1.1 — Projects, preferentially associated to direct offsets (Group I), guided towards the strengthening of national entities development abilities reinforcement to integrate electronic systems;The latter should be associated to the development of the interconnecting systems de between the Targeting Pod and the F-16, as well as to create the ability in Portugal, in order to support the Air Force in exploiting (ex. introducing changes to the TP resulting from modifications performed into the TP interconnection with the aircraft) and the sustainability of the system’s operation;1.2 — Projects guided towards the reinforcement of the national capacities namely in the filed of essays and tests, on land and on board, compatible with electromagnetic and electronic systems;1.3 — Reinforcement of national skills regarding the development, tests and radiofrequency identification systems usage (RFID), with a set of applications encompassing from the luggage identification for the commercial transports up to the allies and enemies identification on the battle filed (IFF).

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EXAMPLES OF OFFSETS PROJECTS

F-16 Targeting Pods Purchasing Program:Type 2 — Reinforcement of national skills associated to the purchase, automatic processing and data availability, for the purpose of creating a national Center of Excellence in this fieldProjects guided to the reinforcement national skills in terms of purchasing, automatic processing and data availability leading to the establishment in Portugal of a Center of Excellence for data processing. This center shall have the capacity to support surveillance activities, reconnaissance and monitoring, from land, maritime, air and spatial platforms from several national entities related to applications such as:

a) Forest fires detection and monitoring;b) Costal surveillance;c) Maritime patrolling;d) Reconnaissance; ore) Targets’ purchasing;

Ideally, the skills developed shall allow to establish a number of services based on the acquired export knowledge;

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EXAMPLES OF OFFSETS PROJECTS

F-16 Targeting Pods Purchasing Program:

Type 3 — Reinforcement of national capacities within the training and simulation areasProjects oriented to the training and simulation system’s development, on board or not, leveraged on the already existent skills in Portugal and focused on its efforts;

Type 4 — Other projects associated to the Command and Control, Communications, Computers, Intelligence, Surveillance, Target Acquisition and Reconnaissance fields (C4ISTAR), if their pertinence and impact on the industrial national development within the scope of this project are dully justified.