VZCZCXRO1329
RR RUEHRG
DE RUEHSO #0506/01 2381042
ZNR UUUUU ZZH
R 261042Z AUG 09
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC 9528
INFO RUEHBR/AMEMBASSY BRASILIA 0662
RUEHRG/AMCONSUL RECIFE 4416
RUEHRI/AMCONSUL RIO DE JANEIRO 9235
RUEHBU/AMEMBASSY BUENOS AIRES 3606
RUEHAC/AMEMBASSY ASUNCION 3855
RUEHMN/AMEMBASSY MONTEVIDEO 2955
RUEHSG/AMEMBASSY SANTIAGO 2853
RUEHLP/AMEMBASSY LA PAZ 4138
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 03 SAO PAULO 000506 
 
SIPDIS 
 
STATE EEB/ODF PASS TO EX-IM BANK 
 
E.O. 12958: N/A 
TAGS: ETRD BEXP EINV ECON ENRG BR
SUBJECT: BRAZIL: Ex-Im Chairman's Visit Opens New Opportunities for 
Bilateral Trade and Cooperation 
 
¶1. Summary: In his first official international visit, Fred 
Hochberg, the newly appointed Chairman and President of the U.S. 
Export-Import Bank (Ex-Im), highlighted Brazil as a priority for the 
USG and committed to deepening bilateral trade relations.   In 
meetings July 28-31 in Rio and Sao Paulo, Brazilian public and 
private sector officials, including Energy Minister Lobao as well as 
Vale, Petrobras, and national development bank BNDES heads, raised 
interest in cooperating in third countries, especially in Africa; 
increasing collaboration on energy and infrastructure; concern over 
the flexibility of Ex-Im requirements in comparison to export credit 
agencies (ECAs) from China and other countries; growing commercial 
demand for financing to protect against currency risk; and Brazil's 
increasing local content requirements and high tariffs.  In 
conclusion to the visit, Ex-Im and Commerce agreed to work together 
to conduct outreach in the United States to key industry sectors to 
promote U.S. technology, equipment and services to Brazil.  End 
Summary. 
 
Partnering in Sub-Saharan Africa 
-------------------------------- 
 
¶2. Vale do Rio Doce's CEO Roger Agnelli, who participates in the 
U.S.-Brazil CEO Forum, said the United States can help Brazil guard 
against political risk as it competes in other markets like Africa. 
He proposed partnering with U.S. firms backed by USG financing to do 
more business in Africa.  John McAdams stated that Sub-Saharan 
Africa is a priority for the U.S. and that Ex-IM would be willing to 
tie financing to U.S. exports to gain joint market share in Africa. 
The Ambassador discussed possible next steps on developing a 
cooperative strategy in Africa combining market entry for U.S. 
companies with financing tied to educational improvement, clean 
water, infrastructure development and health issues.  The Ambassador 
suggested that Vale's finance executives meet with a broader set of 
representatives at Ex-Im in Washington as well as key members of 
Congress.  Fabio Rua, Vale's Finance Director suggested meeting 
September 8 in Washington to discuss developing a strategic plan for 
Africa. (Note: FCS helped Vale set up a meeting with Ex-Im Bank in 
Washington on that date.) 
 
¶3. Agnelli also indicated that Vale is looking for a strategic 
partner to finance infrastructure development in Brazil, and would 
be in favor of the United States participating in these projects. 
McAdams responded that high tariffs and local content requirements 
make market entry difficult for U.S. companies in Brazil.  Agnelli 
asserted that was only the case for oil and gas, and that mining did 
not present the same import challenges. 
 
Challenges to Accessing Ex-Im Financing 
--------------------------------------- 
¶4. In a separate meeting with Petrobras CFO Almir Barbassa and 
Director of Corporate Finance Neyde Sfadi, Chairman Hochberg said 
he was anxious for Ex-Im to move forward with disbursing money from 
the USD 2 billion preliminary commitment extended to Petrobras in 
May 2009.  Barbassa said Petrobras is working to expedite the 
process, given the U.S companies competitive advantage and 
experience in the oil and gas industry, but noted that many other 
ECA's (e.g. Italy, Japan, China, Canada) finance sales to Petrobras 
for equipment that is locally sourced and manufactured, while Ex-Im 
does not.  Barbassa said flexible financing terms were an important 
factor in Petrobras equipment purchases and noted that China has 
offered financing in exchange for 200,000 barrels of oil per day 
over 10 years at a set price.  VP McAdams responded that Ex-Im can 
accept oil as payment as well. 
 
¶5. Barbassa said Petrobras plans to spend USD 174 billion over the 
next five years on pre-salt oil development.  The Ambassador 
suggested that, given local content requirements (which range 
between 60-80% depending on the block under exploration), Brazil's 
National Development Bank (BNDES) and Ex-Im identify areas of 
partnership to allow U.S. companies to enter the market while 
adhering to local content requirements.  Sfadi responded that U.S. 
Maritime Administration (MARAD) restrictions make supplier 
certification challenging and difficult for Petrobras to meet 
Ex-Im's requirements.  She added that Petrobras was more likely to 
use the USD 2 billion to cover USD 700 million in long term services 
contracts and USD 300 million in medium term services contracts 
because of MARAD.  The Ambassador suggested that Ex-Im and Petrobras 
work closely to develop 3-4 working models on how to begin disburse 
loans for Petrobras to purchase U.S. equipment, technology and 
services.  One model could be receiving oil in exchange for credit. 
 
 
SAO PAULO 00000506  002 OF 003 
 
 
Seeking Public Partnerships 
 
¶6. Rio Governor Sergio Cabral hosted a meeting for the Ex-Im 
delegation to outline priorities in infrastructure and industry, 
foster partnerships with local officials, highlight USG financial 
support for U.S. companies bidding on infrastructure opportunities 
in Rio.  The Governor began by emphasizing the significance of 
President Obama sending the Chairman to Brazil on his first 
international trip.  Chairman Hochberg replied that in celebration 
of Ex-Im's 75th anniversary, the bank is redoubling efforts to help 
U.S. exporters with financing through credit, guarantees, and, in 
some cases, direct loans.  He stated that 2009 has been Ex-Im's 
biggest year with USD 60 billion in global exposure and USD 20 
billion in new loans this year, which is exceptional given the lack 
of credit and liquidity in the market.  He also highlighted Ex-Im's 
new environmental loan programs for renewable energy and wastewater 
treatment.  The Chairman stated that Ex-Im and Commerce could match 
U.S. companies with financing to meet Rio's needs.  The Governor 
responded that Ex-Im might want to consider opening an office in Rio 
to stay competitive, since China had already done so. 
 
New Potential Areas of Cooperation 
---------------------------------- 
 
¶7. Reflecting the growing collaboration in the energy sector, 
Minister of Mines and Energy Lobao met with Chairman Hochberg in Sao 
Paulo on the margins of the visit of Chilean President Bachelet. 
Lobao welcomed Ex-Im's visit in the context of Brazil's plans to 
expand its current oil production and investment in a wide range of 
infrastructure projects including ports, airports, and other key 
areas for competitiveness.  Lobao also expressed a desire to work 
with the U.S. in finding solutions to global warming and financing 
for development projects in third countries, specifically Sub-Sahara 
Africa.   Chairman Hochberg responded that Africa is a priority for 
the Obama administration and hopes the two governments can find 
opportunities for joining forces.  Lobao said his Ministry will need 
help to develop the pre-sal oil fields and asked about flexibility 
in Ex-im U.S. content and shipping requirements.  Hochberg replied 
that Ex-Im is seeking clarification on certain regulations but that 
shipping requirements are issue that the U.S. Congress would need to 
address.  Minister Lobao concluded the meeting by arranging for 
Chairman Hochberg to briefly greet Cabinet Minister Dilma Rousseff 
and President Lula. 
 
¶8. The Ex-Im delegation also met with leaders of the Sao Paulo State 
Federation of Industries (FIESP), including President Paulo Skaf and 
International Director Roberto Gianetti de Fonseca.  FIESP expressed 
interest in increasing Ex-Im financing for its members, but cited 
Ex-Im's financing requirements as an impediment.  Skaf expressed 
concern about Chinese commercial expansion in Brazil, saying 
Brazilian companies preferred to 
do business with and compete against U.S. companies - not Chinese 
ones.  Roberto Gianetti mentioned the U.S. - Brazil agreement to 
work together on ethanol in a third country as an example of our 
countries can work together. 
 
GE Success Story 
---------------- 
¶9.  As an example of a successful local U.S. firm, Rogerio Patrus, 
President and CEO for GE in Latin America, and GE Brazil President 
Geraldo Ferreira briefed Chairman Hochberg of their companies 
experience as a model for other U.S. firms looking at the Brazilian 
market.  GE discussed how they had gone from selling locomotives in 
Brazil to importing them unassembled and assembling them to sourcing 
a large portion of the parts in Brazil to exporting U.S. designed 
and engineered locomotives made in Brazil with 30 % Brazilian 
content to third countries.  They have used similar market strategy 
and development in other areas of their business and are currently 
applying it to their product line for wind energy, a market that is 
expected to expand quickly in the next few years.  Chairman Hochberg 
highlighted Ex-Im's new 18-year line of credit for renewable energy, 
environmental and green projects, which the GE officials welcomed 
for potential customers who want to build wind energy or water 
purification for ethanol plants.  The GE officials echoed previous 
themes about Ex-Im financing requirements including MARAD 
regulations of using U.S. flag carriers for shipping. 
 
¶10. GE also discussed how Ex-Im might collaborate with BNDES, which 
GE uses extensively to finance projects.  They confirmed the need 
for "bridge" financing for projects before there is an income 
stream.  As BNDES does not finance this portion of a project, which 
 
SAO PAULO 00000506  003 OF 003 
 
 
causes problems with independent energy producers, Ex-Im VP McAdams 
suggested Ex-Im and BNDES make lines of credit more compatible to 
co-finance projects, either by financing the equipment and machinery 
for projects or actual project expenses. 
 
Working with Brazil's Development Bank 
-------------------------------------- 
 
¶11. In a follow on meeting with BNDES President Luciano Coutinho, 
Chairman Hochberg emphasized their eagerness to work closely with 
BNDES.  The Chairman noted three specific areas for greater Ex-Im 
activity: (1) small business lending, (2) renewable energy, and (3) 
Sub-Saharan Africa.  In response Coutinho suggested greater 
Ex-Im/BNDES cooperation on technical staff and information exchanges 
to facilitate establishment of BNDES's export-import bank and energy 
sector cooperation.  Coutinho proposed the technical exchange as 
extended visits by BNDES staff to Washington to learn more details 
about Ex-Im's operations and energy cooperation in jointly sponsored 
"Am-Cham-type seminars" that would provide companies with 
information about investment opportunities in Brazil.  Both sides 
agreed that Ex-Im/BNDES efforts could culminate in a joint 
appearance at an October 26 energy conference in Houston.  Ex-Im 
agreed to provide a draft agenda and timeline to BNDES.  Coutinho 
stated that the best step Ex-Im could take would be to pro-actively 
reach out to U.S. companies, informing them of opportunities here 
and encouraging them to export to Brazil with Ex-Im financing. 
 
Comment 
------- 
 
¶12. The Chairman's visit identified several new opportunities for 
Ex-Im to expand its presence in Brazil, including working with local 
institutions to raise awareness among U.S. companies of 
opportunities in Brazil and to pair Ex-Im financing with U.S. goods, 
technologies and services.  Opportunities in the energy and 
infrastructure sectors, third country cooperation with Brazil, and 
closer Ex-Im/Commerce collaboration were emphasized themes.  As a 
next step, Ex-Im and Commerce are moving forward with plans to work 
on an initial regional presentation for the Brazil Energy and Power 
event in Houston on October 26 sponsored by AmCham Rio.  At the same 
time, technical issues such as MARAD regulations in the U.S. and 
local content production requirements in Brazil, remain as 
impediments to increasing Ex-Im's financing portfolio in Brazil. 
Likewise, Brazilian proposals to cooperate in third countries will 
first require concrete projects in order to identify clear 
opportunities for joint financing with Ex-Im and Brazilian 
institutions. 
 
¶13.  Chairman Hochberg was accompanied by Ex-Im Chief of Staff Kevin 
Varney, Senior Vice President for Export Finance John McAdams, and 
Senior Business Development Officer Xiomara Creque.  This cable was 
coordinated with Consulate General Rio de Janeiro and cleared by 
Embassy Brasilia.  EX-IM delegation cleared this message. 
1