offset strategy of the brazilian air force - offsets 2011 conference - sofia, bulgary - dióegnes l....

BAF CommandMinistry of Defense

Air Force Secretariat for Economy and Finances (SEFA) Offsets 2011 – Sofia, Bulgaria

Offset Strategy

of the

Brazilian Air Force

A comprehensive approach

Lt Col Diógenes Lima Neto

M.Sc., MBA



Objective

• To have a better understanding of the

BAF’s offset strategy, with special

attention to the relationships between

commercial contracts, offset

agreements and buyer’s credit

operations.

Air Force Secretariat for Economy and Finances (SEFA)



Agenda

• Brazilian Military Offset Focuses & Tendencies

• Offset Strategy of MoD and BAF

• BAF’s Offset Features & Portfolio

• SEFA in context

• Negotiating Commercial, Financial and Offset's

Agreements – a comprehensive approach

• Offset Agreements: Controls and Auditing



Brazilian Military Offset Focus

• NSD is the driver for new high-profile programs, under MoD-issued guidelines for Industrial Participation.

• Other government domains than defense will be increasingly concerned on possible benefits of industrial participation and offsets, such as MoI&T, MRE, MTran, MME and BNDES, specially for large national projects such as high-speed rail transportation and hydrocarbons offshore prospection.



Legal Provisions on Defense Offsets

• National Policy Defense

– Decree nr. 5484, 30 Jun 2005

• National Strategy of Defense

– Decree nr. 6.703, 18 Dec 2008

• National Defense Industry Policy (NDIP)

– Order nr. 899/MoD, 19 Jul 2005

• Strategic Actions towards NDIP

• Normative Order nr. 586/MoD, 24 Apr 2006

• Policy and Directives on Offsets

– Order nr. 764/MoD, 27 Dec 2002

• Joint-workgroup on improving national defense industry capabilities

– Joint-Order nr. 1068, 21 Jul 2008 (MoI&T and MoD)



Brazilian Defense Industry’s Synergy

Industrial Associations

• Defense and Security Materials

• Aerospace

• Regional

Government

• MoD

• MoI&T

• MoC&T

•Agencies

Political

• President

• Legislations

• Ministers

• Parliamentary Front on National Security

Defense and Related Policies

• Brazilian Agency for Industrial Dev. - ABDI

• National Development Bank – BNDES

National Policy Defense

National Strategy of Defense

• Defense Industrial Complex

• Research and Projects Financing – FINEP

• Public and Private Universities

• Navy Command

• Army Command

• Air Force Command



Main civilian players:

Defense Industry Associations

Brazilian Aerospace Industries Association

Brazilian Association of Defense and Security Materials Industries

Federation Industries of São Paulo State

Brazilian Association of Chemical and Biotech Industries

... Among many others...



Main civilian players:

Defense related industries

... Among many others...

Source: ABIMDE

http://www.abimde.org.br/?on=associados

http://www.abimde.org.br/?on=associados



Offset area Defense

Threshold FOB 5 million US$, 12 months

Minimum obligation 100% commercial contract

Timeframe Commercial Contract duration

Source of obligation Direct commercial sales or subcontracting (indirect supply)

Multipliers Empirical, case-by-case basis

Penalties Brazilian administrative legislation

Focus Defense and aerospace industry sectors

Direct offsets Preferential

Indirect offsets Acceptable

Eligible activities Transfer of technology, investments, co-production, licensed

production, marketing support, training, other forms of

countertrade.

Offset Strategy of MoDMoD Order 764/MD - Essentials



Liquidated damages Yes

Bank guaranties Usually 5% of the obligation

Multipliers 1 to 4

Waiver Sole-source suppliers, government-to-government

international agreements (except under competitive

environments)

Banking 50% of new commercial contracts, 5 years, transferable

under the same holding

Pre-offsets No, but may be considered in a case-by-case basis

Swaps No, but may be considered in a case-by-case basis

Industrial

Participation

Acceptable, but only if joint projects are defined upfront and

milestones are established

Penalties Credit-increase based settlements may be accepted

MoU Mandatory, even if the beneficiary is an AF organization

BAF Offset Features

MoD

Army

Navy

Air Force

MoI&T

BNDES

MoC&T

Companies

Universities

Civilian Organ.

Private

Sector

Commercial

Contract

funding

funding

Offset

Agreement

Lenders

Financing

Contract

funding

Defense Offset AgreementsGeneral Schema - Brazil

FINEP

SuppliersOffset

Beneficiaries

MoF



BAF’s Acquisition & Offset Process

EMAER(BAF’s Gen.Staff)

Mil.Org.(Buyers)

DCTA(C&T Dep.)

IFI(Inst. for

Ind. Sup.)

SEFA

Policy & Strategy

Co-ordination

Acquisition Process &

Execution

Technical support

Budgetary & Financial

support

Accounting

Internal Control & Auditing



SEFA in context Air Force Secretariat for Economy and Finances

Int’l Affairs

Secretariat

Federal Budgetary

Secretariat

General Attourney

National Treasury

Central Bank

Banks

ECAs

Financial Institutions

TCU

MPU

Gov’t Auditing and Control

CGU

Foreign Gov’t Entities

BAF Mil Org

TCU: The Brazilian Court of Audit

MPU: The Federal Prosecution Office

CGU: The Office of the Comptroller General



• 5 offset and IP agreements, valued ~US$ 4 billion. (~US$ 500 million credited)

• EADS CASA – P-3 &CL-X

• Airbus – VC-X

• Elbit Systems – F-5BR & AL-X

• Eurocopter – H-XBR

• 18 agreements under negotiation, valued ~US$ 9 billion.

• A-1M – Elbit Systems (T&C agreed)

• CL-X2 – Airbus Military

• H-XBR CLS – Eurocopter & Turbomeca

• F-X2 – waiting final decision from the National Defense Council

BAF’s & Offsets*

SDDP: Underdepartment of Development and Programs *SDDP examples



• Industrial cooperation agreement for local production and nationalization of

50 EC-725 helicopters, focused on transfer of technology and local industry

development.

• First joint acquisition program in Brazilian military history.

• 22 ICP projects, managed by SDDP with AF, Navy, Army and MoI&T

participation.

• Keywords in this project:

Industrial co-operation & sustainable benefits

Long term relationship

Pro-active approach

Global strategy

Latest Success Case: HX-BR Project

MDIC: Ministry of Development, Industry and TradeThe first EC-725 shipped to Brazil – Oct 2010

Source: DefesaNet



BAF Offset Agreements: Controls and Auditing

• Few years ago, the controlling was made exclusively by EMAER.

• Recently, this control was split between EMAER and SEFA. – EMAER: strategic aspects of offset;

– SEFA: fulfillment of the offset credits and its balance.

• The Brazilian Court of Audit (TCU) has demonstrated some concerns with a possible negligence on the fulfillment on offset credits.

• Additionally to the external control exercised by TCU, SEFA is in charge of all activities related to Auditing inside the BAF realm.



Brazilian Offset Tendencies• Brazil is moving from decentralized offset management

toward industrial participation using high profile programs as drivers of the change.

• This implies a different approach to manage offset/IP on Government procurements:– Projects must be discussed at the early stages of program

lifecycles, given that effective industrial participation is in fact direct and so set in the beginning for joint development and production to succeed (the CMA issue).

– Industrial cooperation demands more institutional support from the offset authority to the local industry, including investments and continuous workload.

– Sound business plans are paramount.



Agenda

• Brazilian Military Offset Focuses & Tendencies

• Offset Strategy of MoD and BAF

• BAF’s Offset Features & Portfolio

• SEFA in context

• Negotiating Commercial, Financial and Offset's

Agreements – a comprehensive approach

• Offset Agreements: Controls and Auditing



Objective

• To have a better understanding of the BAF offset strategy, with special attention to the relationships between commercial contracts, offset agreements and buyer’s credit operations.

Air Force Secretariat for Economy and Finances (SEFA)



Offset Strategy of the Brazilian Air ForceA comprehensive approach

Lt Col Diógenes Lima Neto

International Projects Management

Tel: +351 939 631 921

E-mail: [email protected] / [email protected]

Special thanks to Lt Col Eduardo Quesado for his brilliant contribution.

mailto:[email protected]

mailto:[email protected]

offset strategy of the brazilian air force - offsets 2011 conference - sofia, bulgary - dióegnes l....

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