1 THE ENERGY SECTOR AND INVESTMENT OPPORTUNITIES IN BRAZIL Brazil Energy Summit New York, June 23 rd, 2008 Luciano Coutinho President Brazilian 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

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) Total credit (% of GDP)

6 … and the capital market is booming

7 Steady and high profits 12.7% is the average 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 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 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 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

13 New Industrial Policy forecast: Investments will accelerate, reaching 21% of GDP in 2010 Source: IBGE & PDP (forecasts). Investment rate (% of GDP)

14 Investment expansion means an expanding BNDES portfolio Approvals are US$ 18 billion higher than disbursements Source: BNDES

15 Gap is due to infrastructure projects Approvals for infrastructure increased sharply after 2005.

16 Investment plans are increasing Investments may grow at 11.8% per year ( / ) Source: BNDES Investment Forecast

17 Source: BNDES Investment Forecast. Investments in infrastructure and housing US$ Billion

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

19 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.

20 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

21 Brazilian Energy Matrix (II) Brazilian Energy Matrix (%) 2006 Hydroelectricity share in total electricity is 90%

22 Growth Acceleration Program (PAC): BNDES in PAC (05/31/08): 195 projects Potential Financing – US$ 44 bi (70%  energy) Total Investments - US$ 86 bi

23 PAC Electric Power Generation and Transmission: prospects 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)

24 PAC Oil and Gas: prospects gasoducts under construction (1,557 Km). Start of construction: 7 gasoducts (1,831 Km); COMPERJ – refinery of 150 thousands barrels per day of heavy oil Suape 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 ETHANOL Challenges and Opportunities in BRAZIL Cost of Ethanol Production (US$/barrel)

26 ETHANOL Challenges and Opportunities in BRAZIL 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.

27 Source: Ministry of Agriculture ETHANOL Challenges and Opportunities in BRAZIL

28 Source: Ministry of Agriculture ETHANOL Challenges and Opportunities in BRAZIL 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

31 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.