1

THE ENERGY SECTOR AND INVESTMENT THE ENERGY SECTOR AND INVESTMENT

OPPORTUNITIES IN BRAZILOPPORTUNITIES IN BRAZIL

Brazil Energy Summit

New York, June 23rd, 2008

Luciano CoutinhoLuciano CoutinhoPresidentPresident

Brazilian Development Bank - BNDESBrazilian Development Bank - BNDES

2

Brazil’s Economy Outlook

3

Strong macroeconomic fundamentals

“Investment grade” status shall reduce the cost of

capital;

Accumulation of foreign reserves prevent vulnerability to

external shocks.

Credit and capital markets are expanding and the private

sector is profitable and robust.

Fiscal and monetary policies will keep inflation under control.

Investment is expanding vigorously.

4

Since 2004, Brazilian Economy is on a faster and more stable growth track

GDP GROWTH (% YEAR)

Source: Brazilian Central Bank * BNDES Forecast.

BNDES forecasts 5.0% growth rate for 2008

2.82.5

5.7

3.2

3.8

5.45.0 5.0 5.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Média1984-93

Média1994-03

2004 2005 2006 2007 2008* 2009* 2010*

Average 2004-2007:4.5

5

From a low base, credit is expanding

Source: Brazilian Central Bank and BNDES (forecasts).

Credit growth rate reached 27% in 12 months up March 2008

Total Credit (% of GDP)

22.024.0 24.5

28.1

30.7

34.7

47.0

44.0

39.5

20

25

30

35

40

45

50

2002 2003 2004 2005 2006 2007 2008* 2009* 2010*

*ForecastsTotal credit (% of GDP)

6

… and the capital market is booming

Primary Offerings (US$ Billion)*

10.407 9.8357.276

3.3978.355

25.310

50.607

67.361

-

10.000

20.000

30.000

40.000

50.000

60.000

70.000

80.000

2000 2001 2002 2003 2004 2005 2006 2007

Source: CVM.*Includes equities, debentures and commercial papers.

7

Steady and high profits

3.4

4.8 4.4 4.6

1.2

6.3 6.6

2.8

11.3

14.1

12.5 13.0

-

2

4

6

8

10

12

14

16

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

12.7% is the average 2003-2006 R.O.E., the highest level in 25 years

Average:12.7

Top 500 companies: R.O.E. (%)

Source: Conjuntura Econômica,aug/2007

8

Debt to net worth has also decreased

54.360.6

82.1

60.6

50.441.7 43.7

-

10

2030

40

50

60

7080

90

100

2000 2001 2002 2003 2004 2005 2006Source: Valor 1000, aug/2007

% of net worth

High profits, low debt: leverage for future growth!

Top 1000 companies: debt with financial institutions

9

Source: Brazilian Central Bank.

Foreign debt is not a restriction any longer...

Brazil became a net creditor due to accumulation of foreign reserves

190.3

162.7 165.0151.0

135.7

101.1

74.8

-11.9 -15.1

-50

0

50

100

150

200

250

2000 2001 2002 2003 2004 2005 2006 2007 2008*

Net external debt – US$ billion

Foreign reserves: US$ 198 bi (June 13rd)

10

Source: BRAZILIAN Central Bank*Forecasting Boletim Focus (06/13/08)

Inflation Rates are within Central Bank Targets

9.30

7.60

5.70

3.10

4.46

5.80

4.63

0

2

4

6

8

10

2003 2004 2005 2006 2007 2008* 2009*

Brazilian CPI ( IPCA)

% per year

Inflation will be kept under control

11

The Energy Sector and Investment Opportunities in Brazil

12

Investment is booming

Source: IBGE

Investment is growing at 15% a year, 2.6 times faster than GDP

5.4

1.6

7.8

14.1

5.3

13.4

4.5

7.8

3.22.52.9

3.13.1

3.93.5

5.0

4.0

11.6

1.5

7.4

4.4

9.8

5.1

11.2

4.4

8.9

5.4

13.9

5.6

14.6

6.2

16.0

5.8

15.2

0

2

4

6

8

10

12

14

16

18

2004T1

2004T2

2004T3

2004T4

2005T1

2005T2

2005T3

2005T4

2006T1

2006T2

2006T3

2006T4

2007T1

2007T2

2007T3

2007T4

2008T1

PIB FBCF

13

New Industrial Policy forecast:Investments will accelerate, reaching 21% of GDP in 2010

Source: IBGE & PDP (forecasts).

Investment rate (% of GDP)

18.3

17.4

15.7

16.816.4

15.3

15.9

16.5

17.6

18.6

19.7

20.9

14

15

16

17

18

19

20

21

22

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

FORECAST

14

Investment expansion means an expanding BNDES portfolio

Approvals are US$ 18 billion higher than disbursements

Source: BNDES

Disbursements and Approvals (US$ Billion)

19.8

15.1 14.0 13.1

22.4

34.1

50.7

61.6

16.6

9.9 10.7 12.8

16.412.6

10.9

13.619.3

23.6

33.3

43.7

17.6

10.8 11.5 13.0

-

10

20

30

40

50

60

70

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008*

Disbursements Approvals

*12 months up to May

15

Gap is due to infrastructure projects

Approvals for infrastructure increased sharply after 2005.

Disbursements and Approvals (US$ Billion)

7.56.8

3.44.6

3.04.3

3.1

4.9

6.57.37.0

9.7

3.6

6.0

2.6

5.44.6 4.4

7.2

10.3

13.2

17.9

23.4

26.6

-

5

10

15

20

25

30

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008*

Disbursements Approvals

*12 months up to May

16

Investment plans are increasing

Investments may grow at 11.8% per year (2008-2011/2003-2006)

GrowthObserved (% p.y.)2003-2006

Manufacturing 128.0 229.4 12.4 Infrastructure 64.0 118.9 13.2 Housing 165.4 274.6 10.7 Total 357.4 623.0 11.8

SectorsInvestments (US$ Billion)

Forecast2008-2011

Source: BNDES Investment Forecast

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Source: BNDES Investment Forecast.

Investments in infrastructure and housing

US$ Billion

2003-2006 2008-2011 (p.y.%)Electricity power 21.0 51.8 19.8Communication 29.9 28.7 (0.8) Railways 4.7 10.2 16.9Ports 1.5 3.5 18.7Saneamento 6.9 24.6 29.0Total Infra 63.95 118.92 13.20Housing 170.5 274.6 10.7

GrowthSectors

Observed Forecast

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Brazilian Energy Strategy

The Brazilian strategy for the energy sector envisages: Efficiency in the production and distribution of energy for a sustainable

development; An increase in the share of biofuels in the energy matrix;

Environmental protection;

Protection of consumers’ interests; and

Promotion of social development.

Brazil: Energy supply and demand (2005-2030)*Millions tonnes oil equivalent

219

279

398

165206

289

403

557

100

200

300

400

500

600

2005 2010 2020 2030

Supply Demand

Source: Ministry of Mines and Energy. *2010, 2020 and 2030: forecasts.

Brazil: Electricity supply and demand (2005-2030)*Million Tonnes Oil Equivalent

3238

55

75

31

39

51

73

0

20

40

60

80

2005 2010 2020 2030

Supply Demand

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Development of bioenergy and the biomass

Long-term prospects:

Consolidate the country’s leadership in ethanol;

Develop cellulosic ethanol;

Develop agrobiotechnology and nanotechnology;

and

Develop correlated industries.

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Brazilian Energy Matrix (I)

Sugarcane share in total Brazilian Energy Matrix is 14.6%

Hydroelectricity share in total Brazilian Energy Matrix is 14.8% Fonte: Ministry of Mines and Energy – National Energy Balance 2007

Energy Matrix (%)Brazil & World - 2006

45

14

86

55

0

20

40

60

80

100

World Brazil

Renewable

Non Renewable

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Brazilian Energy Matrix (II)

Brazilian Energy Matrix (%)2006

Hydroelectricity share in total electricity is 90%

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Investments in Infrastructure - US$ Billion (2007/2010)Total % of Share.

ENERGY: 141.05 54.53 Oil and Natural Gas 91.87 35.52 Electric Power Generation 33.82 13.08  Renewable Fuels 8.93 3.45  Electric Power Transmission 6.42 2.48

SOCIAL & URBAN: 87.67 33.90  Housing 54.56 21.10   Sanitation 20.53 7.94   Water Resources 6.52 2.52“Light for Everyone” Programm 4.47 1.73  Subways 1.59 0.62

LOGISTIC: 29.92 11.57

Total 258.64 100.00

Growth Acceleration Program (PAC): 2007-2010

BNDES in PAC (05/31/08): 195 projectsPotential Financing – US$ 44 bi (70% energy)Total Investments - US$ 86 bi

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PAC Electric Power Generation and Transmission: prospects 2008

95 new plants will produce 3,120 MW: 2 Hydro, 13 Thermo e 4 Small Hydro Plants (1,562 MW); PROINFA (Alternative Sources) – 76 (1,558 MW).

4 auctions of new energy (mainly hydroelectricity): 7,000 MW

Start of 2,948 km in new Transmission Lines

3 auctions of Transmission Lines (5,691 Km)

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PAC Oil and Gas: prospects 2008

7 gasoducts under construction (1,557 Km).

Start of construction:7 gasoducts (1,831 Km);COMPERJ – refinery of 150 thousands barrels per day

of heavy oilSuape Petrochemical Complex.

Expansion of oil tankers fleet: 10 ships Suezmax – the first one to be launched in

2010;4 ships (capacity of 45 thousands tons) – the first one to

be launched in 2009.

25

154

75

51 4632

0

30

60

90

120

150

180

EU (Cereal) USA (Maize) Australia(Sugarcane)

Thailand(Sugarcane)

Brazil(Sugarcane)

ETHANOL Challenges and Opportunities in BRAZIL

Cost of Ethanol Production (US$/barrel)

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Million ton % total1 Brazil 422.9 41.82 India 232.3 23.03 China 87.8 8.74 Pakistan 47.2 4.75 Mexico 45.2 4.56 Thailand 43.7 4.37 Colombia 39.9 3.98 Australia 37.8 3.79 Indonesia 29.5 2.9

10 USA 25.3 2.5Total 1,011.6 100.0Source: FAO

Top 10 sugarcane producers - 2005

ETHANOL Challenges and Opportunities in BRAZIL

2007 2008-2010 Total

Production(billion liters/year) 19.1 23.3 42.4

New plants 17 60 77

Investiments (US$ billion) 1.37 4.83 6.2

Targets for Ethanol

Ethanol surpassed gasoline consumption in Brazil (1.4 billion liters sold last February).Ethanol consumption growth of nearly 55% (Q1/08 vs. Q1/07) 90% of new vehicles in Brazil are flex fuel.

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BRAZIL ARABLE LAND - million hectares

3

851

383

6

91

63

0 100 200 300 400 500 600 700 800 900

Sugarcane growing forethanol today

Sugarcane today (sugar +alcohol)

Available for expansion

Cropland in use

Arable land

Total Brazil

(45% of total)

(11% of the total or 24% of arable land)

(0.35 % of total or 0.8% of arable land)

(7.4 % of total)

(0.7 % of total or 1.6 % of arable land)

Source: Ministry of Agriculture

ETHANOL Challenges and Opportunities in BRAZIL

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Source: Ministry of Agriculture

ETHANOL Challenges and Opportunities in BRAZIL

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Sugarcane Area Total Area

Evolution of cropland in use - BRAZILtsd hectares

Brazil: sugarcane Average productivity (kg/ha)

60,000

64,000

68,000

72,000

76,000

80,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Expansion of sugarcane production results mainly from productivity increases

29

Location of sugar/ethanol mills in Brazil

Biofuels: investment location

30

Future prospects are positive

The Brazilian economy is poised for a sustained period of growth.

Of strategic importance: investment expansion ahead of GDP growth; emphasis on innovation.

Key drivers: A robust private sector

An expanding credit & capital markets

Ongoing public initiatives

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Final Remarks

An efficient and sufficient supply (and distribution) of energy plays a vital role in economic performance.

Renewable energy sources are a vector of economic and social sustainable development.

The Brazilian strategy for energy sector contributes to tackling the socio-environmental challenges facing the planet.

Expansion of ethanol will comply with standards of preservation and sustainability of Brazilian social and ecosystems.