How to do business in Brazil - 2013 Edition

Part 2: Establishment and Market Entry

Part 1: Market Overview and Opportunities

Part 3: Running a Company in Brazil

HOW TO DO BUSINESS IN

A Guide for Offshore, Oil&Gas and Maritime

Companies Entering Brazil

BRAZIL2013 Edition

Developed by

WELCOME TO BRAZIL!

AreaBrazil is South Americas largest country, about 22 times larger than Norway, and in fact larger than continental USA. Brazil shares a border with 10 other South American countries and stretches over 3 time zones.

Rio de Janeiro

Brasilia

Sao Paulo

Amazonas

ParanaMacae

The Portuguese arrived in Brazil in 1500. Brazil remained a Portuguese colony until 1822, when independency was declared.

Brazil is the worlds sixth largest economy, and also one of the most shielded, in terms ofbarriers on international trade and capital flow.Half of Latin Americas GDP is generated in Brazil.

Brazil has a spectacular nature. The Amazonas basin is home to both the worlds largest rain forest and the worlds largest river. Brazil has more than 5,000 km of coast line forming an almost continuous stretch of white sand beaches. The Pantanal wetland area is globally unique for its animal and plant diversity, and the Iguau waterfalls are larger than the Niagara Falls. Social development. Over the

last 5 years, more than 25 million Brazilians have been lifted out of poverty, and crime rates are dropping in the largest cities.

Population. Brazils population is almost200 million. The rich Southeastern region isthe most populous, dominated by people ofEuropean descent. The poorer Northeasternregion is a mix of people with European,African and indigenous roots. The vastother regions of the country are relatively thinly populated.

The carnival of Brazil is world famous, but represents just a small part of the countrys exceptionally rich cultural life.

Brazil is a republic, with a president who is directly elected for a 4 year term. The president is both the Head of State and the Head of the Government, and has extensive powers. Dilma Rousseff, elected in 2010, is Brazils first female president.

Voting is mandatory in Brazil for all literate citizens aged between 18 and 70.

The most important cities are Brasilia (the capital), Rio de Janeiro (the oil&gas capital) and Sao Paulo (the commercial engine). Sao Paulo (picture) has more than 20 million inhabitants.

Football is what most people associate with Brazil. The five-time world champion will host the football World Cup in 2014 as well as the Summer Olympics in 2016, and will see massive investments in infrastructure.

Export. Brazil is the worlds biggest coffee exporter. But even larger export articles are soy beans, steel, petroleum and chicken products.

Brazil has discovered enormous offshore oil reserves. This is the engine in Brazils current economic boom, and has generated a strong and growing demand of all kinds of products and services related to the oil sector, as well as reviving the Brazilian maritime industry. Over the next five years, a total investment of more than USD 300 billion is expected in areas where Norwegian suppliers in many cases are world leading. The center for the oil activity is Rio de Janeiro, with nearby Macae as an important hub.

Lusoimages / Shutterstock.com

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Macae

How to Do Business in Brazil gives a comprehensive overview of the issues a foreigncompany needs to be aware of when establishing and operating a business in Brazil, andpractical advice on how to handle the related challenges.

Structure:1: Market Overview, Opportunities and Challenges2: Establishment and Market Entry3: Running a Company in Brazil

The guide is aimed at Norwegian oil, offshore and maritime companies. However, parts2 and 3 are not industry specific, and have a general validity for companies entering orexpanding in the Brazilian market. This is an annual publication by Innovation Norway, INTSOK and the Norwegian GeneralConsulate in Rio de Janeiro. The report is developed by Inventure Management, a Rio-basedstrategic and operational partner for foreign oil and offshore companies. The guide is also published online at www.howtodobusinessinbrazil.com (password protected).

Rio de Janeiro, May 2013

ABOUT THIS GUIDE

www.howtodobusinessinbrazil.com

CONTENTS


CONTENTS1: MARKET OVERVIEW AND OPPORTUNITIES 9

Introduction 10

Overview 11

Reserves And Production 11Petrobras and Other Operators 11Brazils Main Exploration and Production Areas 12

Brazils Challenges 14

Lack of Construction Capacity 14Lack of Infrastructure 14Lack of Qualified Personnel 14Political Pressure on Petrobras 14

Opportunities for Norwegian Suppliers 16

Petrobras Construction Projects 16OGX Construction Projects 19Field Development/Subsea/MMO 19PROEF - Program for Increasing the Operational Efficiency in the Campos Basin 20

Current Norwegian Activity in Brazil 21

Statoil 22

Risks 23

Political/Economic Risks 23Bribery and Corruption 23Legal Risks 24Security and Crime 24Operational Risks 24

Local Content Considerations 25

Introduction 25Local Content Complexity and Levels 25Local Content Requirements: A Challenge That Also Brings Opportunities 26Local Content Implications for Suppliers 27Example: Calculation of Local Content for Products 28 Recommended Activies for Local Content Development 29

2: ESTABLISHMENT AND MARKET ENTRY 30

Introduction 32

The Crucial First 12-24 Months 32

Market Entry Considerations 33

Dedicated Resources Need to Be Made Available 33 Dedicated Resources Need to Be Made Available 33Business Set-Up According to Your Product/Service 33

Available Sources of Financing and Support 35

Innovation Norway 35INTSOK 36GIEK Garanti-Instituttet for Eksportkreditt 36Export Credit Norway 36Nopef the Nordic Project Fund (Nordisk Eksportfond) 36

Company Establishment 37

Deciding on Company Type 37Establishment Process 37Corporate Capital Needs 38

Visa Requirements 39

Overview 39Is it Necessary to Apply for a Visa for Regular Business Trips to Brazil? 40Obtaining a Visa 40

Expat Issues 41

How Much Does an Expat Cost? 41Living costs 41Practical Tips for New Expats in Brazil 42

Market Entry - Building Sales 44

Free Up Key Resources for Commercial/Core Business 44Continuous Presence and Customer Contact 44Brazilian Sales Force 45Build an Industry Network in Brazil 45Have a Long Term Perspective 45Get the Basics Right 45

Petrobras Supplier Certification 46

Overview 46CRCC Registration as a Certified Petrobras Supplier 48MVLO Petrobras Master Vendor list (offshore or onshore) 49

3: RUNNING A COMPANY IN BRAZIL 50

Introduction 52

Cultural Differences, A Mission Critical Factor 53

Differences 53Brazilian Business Culture, From a Norwegian Point of View 53Global Cultural Types 56

Administration of Brazilian Employees 58

Higher Staffing Needs 58Salaries and Employee Costs 58Non-Mandatory, But Common Benefits 59Key HR Regulations 59Terminating a Contract 60Outsourcing of Functions 60

Paying Taxes 61

Corporate Tax Types 61Overview of Main Taxes 62Selecting a Tax Regime 63Tax on Dividends 63Tax on Capital Gains 63Tax Implications if Invoicing from Abroad 64 Individual Income Tax for Expats 64

Accounting 65

Brazilian Accounting and Financial Terminology 65Audits 65

Legal Issues 66

Legal Assistance 66Contract Issues 66Property Law 67

Import 68

First Step RADAR 68Shipping & Customs Clearance 69Import Taxes 69Authorities Involved in the Import Process 70Special Customs Regimes 71REPETRO 71

Corporate Social Responsibility 73

Tax Benefits 73Existing Norwegian-Brazilian Projects 73

APPENDICES 75

Appendix 1: Useful Contacts 76

Norwegian Organizations 76Brazilian Organizations 76Local Partners 76

Appendix 2: Labor Law 77

Definition of Employee 77Labor Agreements 77Compensation 77Salary Increases 77Working hours 77Vacations and Leaves of Absence 77Term of Individual Labor Agreements 78Termination of Individual Labor Agreements 78Social Security and Pension Funds 78Severance Payment Fund (FGTS) 78Health Hazard Allowance 79Dangerous Work Allowance 79

Appendix 3: Accounting and Financial Reports 80

Appendix 4: Important Entities 81

Main Governmental Players 81Main Non-Governmental Public Players 82

Appendix 5: Main Brazilian Shipyards 84

CONTENTS MARKET OVERVIEW AND OPPORTUNITIES

10 Introduction

11 Overview

14 Brazils Challenges

16 Opportunities for Norwegian Suppliers

21 Current Norwegian Activity in Brazil

23 Risks

27 Local Content Considerations

Expenditure 2013-2016, main oil markets. (Source: INSTOK/Rystad Energy)

10 HOW TO DO BUSINESS IN BRAZIL

www.howtodobusinessinbrazil.com IntroductIon

INTRODUCTIONThe Brazilian oil/offshore market is experiencing the worlds largest investment program within exploration and production, 90% of which is planned to be invested by Petrobras

the investments cover the entire value chain from seismic/G&G, drilling, well services, engineering, construction/installation, topsides/processing equipment, subsea equipment/installation, downhole equipment/services and operational/professional services, as well as shipbuilding/related services. norwegian companies are leading suppliers within all these segments, and should be in a very good position to capitalize on the developments.

Brazil is a complex business environment toenter, and many companies entering Brazilmake similar, common mistakes, which canbe costly and time consuming to correct. Butwith care and planning, these challenges aremanageable and should not in themselves bea reason to down-prioritize a Brazil marketentry. As the figure below shows, Brazil isconsidered the worlds largest oil and gasmarket by expenditure for the years 2013-2016.

The oil producing operators: barrels of oil equivalents produced per day (average for February 2013).(Source: ANP/SDP/SIGEP)

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PART 1: MARKET OVERVIEW AND OPPORTUNITIES

OVERVIEWReserves And Production

Brazils proven crude oil reserves are 15.7 billion boe, with another 15.8 billion boe probable. As a comparison, norway has 6.7 billion boe of proven reserves.

Brazils crude oil production is around 2.1 million barrels of oil equivalents per day (boed). this is projected to double within 2020.

Petrobras and Other Operators

State-controlled Petrobras is the dominant participant in Brazils oil sector, holding important positions in up-, mid-, and downstream activities. the company held a monopoly on oil-related activities in the country until 1997, when the governmentopened the sector to competition.

royal dutch Shell was the first foreign crude oil producer in the country, now joinedby many others.

Statoil is the second largest oil producer in Brazil after Petrobras, followed by Shelland BP.

competition in the offshore sector is not just from foreign companies: Brazilian independent oil company oGX, which has a lot of former Petrobras employees, startedto produce oil in the campos Basin in 2011. the company is making significant headway in establishing itself as a key player within the Brazilian deepwater market, with a portfolio comprising 30 exploratory blocks within the campos, Santos, espirito Santo, Para-Maranho and Parnaiba Basins. oGX plans to produce 1.38 billion barrels of oil equivalent per day by 2019, to become second only to Petrobras in terms ofproduction.

the 3 largest operators produce 98.7%of Brazils total oil output.


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Brazils Main Exploration and Production Areas

the vast majority of Brazils e&P activity takes place in three offshore basins: Santos, campos and espirito Santo.

In a nutshell:

Santos: Main exploration area, where most of the activity related to the huge pre-salt finds is concentrated. the activity related to the pre-salt is driving the current intensive foreign interest and extensive investments in the Brazilian oil/offshore sector.

Campos: Main Production area, where about 75% of Brazils oil is produced. High degree of mature fields.

Espirito Santo: Increasingly becoming a focus area for e&P activity, currently accounting for about 10% of Brazils oil production.

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Santos Basin - Pre-Salt Exploration

A consortium of Petrobras, BG Group, and Petrogal discovered the tupi field in 2007, which contains substantial reserves in a pre-salt zone about 7km below the ocean surface under a thick layer of salt. Following tupi, numerous additional pre-salt finds were announced in the Santos Basin, such as Iracema, carioca, Iara, Libra, Franco and Guara. Additional pre-salt discoveries were also announced in the campos and espirito Santo Basins. estimates for the total pre-salt resources vary. Some analysts place total extent of pre-salt recoverable oil and natural gas reserves at more than 50 billion barrels of oil equivalent (boe).

the pre-salt oil production currently amounts to about 2% of Petrobras total oil output, predicted to increase to 40% in 2020, when AnP hopes to export 2 million bopd (barrels of oil per day).

Campos Basin

the campos Basin Accounted for 73% of Petrobras domestic production of oil/natural gas in 2011, at a level of 1.68 million bpd.

Strong production growth from 1995 until its peak in 2009; thereafter a reduction in the production for the mature fields of about 25 000 bpd annually.the operational efficiency of the mature fields is declining. the largest producing mature field, Marlim, produced 203,000 bpd with a capacity utilization ratio of 27% in Q2 2012, down from 60% in 2005.

to improve efficiency and maximize production of the mature fields, the Program for Increasing operational efficiency in the campos Basin, ProeF, was launched in Q3 2012. ProeF will invest uSd 5.1 billion in an area covering 31 platforms with a main focus on subsea and well, generating very interesting opportunities for suppliers. For more details, see the separate ProeF chapter under opportunities for norwegian Suppliers.


www.howtodobusinessinbrazil.com BrAzILS cHALLenGeS

BRAZILS CHALLENGES

Lack of Construction Capacity

Petrobras plans to construct 33 drilling rigs, 36 FPSos and 49 tank ships until 2020, all of this in Brazil. More than half of this is planned for completion within 2016.

Petrobras is under strong political pressure to maintain the schedule, but the current construction capacity in Brazil is not sufficient to absorb this volume, even with the planned new shipyards. there are already considerable delays in some of the first projects, and market reports indicate that the FPSos and drilling rigs scheduled for delivery within 2016 could be delayed by as much as 3-4 years.

It is considered probable that Petrobras will go through with the entire construction program even with the delays, possibly adopting more pragmatic policies including loosening local content demands. The vast construction program will continue to be one of the major drivers of supplier opportunities worldwide.

Lack of Infrastructure

the infrastructure handling the offshore activity, in particular ports and terminals, will need substantial development in order to sustain the increased offshore activity over the next decade.

The Brazilian Government in December 2012 announced an investment package of USD 26 billion, destined for much-needed improvements of port infrastructure and logistics.

Lack of Qualified Personnel

the rapid development of the oil industry has outrun Brazils educational capacity in this area. with a projected unmet demand of more than 200,000 skilled workers over the next 4 years, this is a major bottleneck in the development of a self-sufficient Brazilian oil/offshore industry.

For the years to come, Brazil is likely to depend on foreign expertise and skilled labor, creating opportunities for a wide range of service providers. (It should be noted that obtaining visas for foreign workers/expats requires thorough planning in advance, see the Visa Requirement chapter for more information.)

Political Pressure on Petrobras

the markets have sent the Petrobras stock value down, expressing worries that what is seen as heavy-handed political intervention may be detrimental to long term value creation. Petrobras is squeezed between a political demand to rapidly build a Brazilian offshore industry by demanding high levels of local content for construction, and the financial strain of constructing offshore installations in Brazil at above world market prices.

Specifically, the government has been criticized for not allowing Petrobras to raise domestic gasoline and diesel prices in line with world prices. this has been seen as a political move to retain popular support, and has prompted Petrobras first loss in 13 years (Q2 2012). Petrobras refining unit suffered losses of more than uSd8 billion in 2012.

Petrobras HQ, Rio de Janeiro

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this exemplifies what is seen as the core problem:

Petrobras plans to fund the investment program mainly through its own cash flow. But the cash flow is strapped because the company is not allowed to operate according to market conditions. Less cash flow means lower investments, leading to a probable loss of future revenue that would have been generated from the cut investments.

However, the impact may not be that large for norwegian suppliers. In order to improve the cashflow over time, Petrobras has to prioritize the most revenue-generating investments, which are investments in exploration and production (at the expense of downstream activities). this is the focus of norwegian suppliers, who look forward to a very interesting market in Brazil over the years to come.

On the positive side: The government went through with the much-anticipated 11th bid round of oil field concessions, which took place in May 2013. The annual auctions had been halted since 2008 due to political wrangling over oil royalty rights. The bid round fetched USD 1.4 bn for the 289 exploration blocks on offer. Statoil won concessions for 6 blocks, at a price of USD 90 million. The auction is widely expected to generate a large surge of activity across Brazils oil industry. Tentative dates were also announced for the first auction of pre-salt exploration blocks under the new production-sharing agreement, planned for Nov. 28 and 29, 2013.

Naval/Offshore investiments in Petrobras investment plan 2012-2016. (Source: Petrobras)


www.howtodobusinessinbrazil.com oPPortunItIeS For norweGIAn SuPPLIerS

OPPORTUNITIES FOR NORWEGIAN SUPPLIERSThe main opportunities for Norwegian suppliers will be driven by large scale naval/offshore investments, mainly originating from Petrobras vast Investment Plan. However, there are also opportunities for within seismic/G&G, drilling, well services, subsea equipment/installation, downhole equipment/services and operational/professional services.

Petrobras Construction Projects

Petrobras Investment Plan

Petrobras Investment Plan for 2013-2017 projects total investments of uSd 236.7 bn in the period, of which uSd 231.6 bn will be invested in Brazil. this accounts for ~90% of the planned total investments in the Brazilian

oil/offshore sector during this period, and is the main driver of oil/gas related activities and economic development.

out of Petrobras total planned investments of uSd 236.7 bn from 2013-2017, the 134 bn destined for the offshore and naval industries is of particular interest for norwegian suppliers.

Petrobras construction needs 2012-2020. (Source: Petrobras and Inventure Management analysis)

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Construction Needs

Petrobras calculates that in order to meet the goals stated in the investment plan, the following construction projects will have to be completed by 2020 in order to meet Petrobras need for drilling, production and sea transport:

Procurement Timing for Planned Construction Projects

As mentioned in the chapter Brazilschallenges, limited construction capacityand other bottlenecks may significantlydelay the completion dates of the plannedconstruction projects, in some cases possiblyfor several years.

this does not mean that the related procurement for the projects will necessarily be pushed back accordingly in time. 2013 seems to be a very active year on the bidding front. For a number of upcoming projects the stated intention is to replicate the specifications for several units. this allows for bulk contracting covering all units as a package, including units planned for construction well into the future.

the following illustrations give an approximate, general procurement status for Petrobras construction projects. the procurement timing for specific types of equipment will of course vary considerably, and a more complete overview of this requires a break-down at product level.

The rigs are commissioned by Sete Brasil, and will be chartered out to Petrobras. 3 of the drillships constructed at Jurong will be operated by Odfjell, and another 3 by Seadrill.



Brazilian banks, local pensions fund and other investors.

Petrobras intends to charter the rigs on 15 year contracts.

the total cost is expected to be at least uSd 25 billion, and the construction is split between 5 Brazilian yards.

Drilling Units

Petrobras needs 33 new drilling rigs by the end of 2020 in order to meet its future production targets. 29 ultra deepwater rigs will be constructed in Brazil, and the company Sete Brasil was established in 2011 to finance and contract the rigs, and then charter them back to Petrobras. Sete Brasil is owned by Petrobras, large

THE 29 DRILLING RIGS TO BE CONSTRUCTED IN BRAZIL

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Production Units (FPSOs) Petrobras is undertaking massive investments in production units, with a planned construction of 38 FPSos until 2020 including 19 vessels to be delivered by 2016.

However, this is regarded as a very optimistic target. Market intelligence indicates that at current operational levels, the construction capacity for FPSos in Brazil until 2016 would be limited to a one-digit figure, and that it could take several additional years to complete the construction target for 2016.

It is considered likely that Petrobras will go through with the investment program, even if it will be considerably delayed Tank Ships

the large expansion of the tanker fleet managed under the ProMeF Program provides opportunities for suppliers of naval equipment and services. worth noticing is that local content is not an issue with regards to tankers. Since the vessels are built at Brazilian shipyards, the massive quantities of Brazilian steel used for the construction will in most cases ensure that the ship meets the local content demands through the hull alone.

OGX Construction Projects

oGX is the largest private oil company in Brazil, and a part of the eBX Group owned by eike Batista, Brazils wealthiest person. oGX has expansive construction plans, and has stated that it will contract a total of 48 production units until 2019, including 19 FPSos, 24 wellhead platforms and five tLwPs.

oGX will contract the construction from oSX, a shipyard/construction company also within the eBX Group. Since the existing shipyard capacity in Brazil will be completely absorbed by Petrobras investments, eBX established oSX to create additional construction capacity for its own needs.

However, as of early 2013, there seems to be volatility around the company structure and strategic direction of oGX. It is too early to draw conclusions about the impact on oGX construction program, but it seems likely that oGX, like Petrobras, will face capacity challenges

Field Development/Subsea/MMO

In addition to the field development/subsea activities related to the development of new fields, the large number of offshore installations translates into a substantial demand for maintenance and modification work. of particular interest is ProeF, the Program for Increasing operational efficiency in the campos Basin, which will generate a large demand for subsea/well services (see next chapter).

Presalt Subsea CAPEX

Infield Systems estimates a necessary investment of uSd 7.76 billion to develop the Brazilian pre-salt projects until 2016, and a further 8.0 billion from 2017-2020. this accounts for 38% of the projected subsea capex in Brazil and includes the developments of Libra, Lula, cernambi, Franco and Sapinhoa fields. the ratio of pre-salt field costs to total subsea cost is expected to remain stable until 2020.

Subsea Total Spend

the Brazilian subsea market is expected to reach uSd 13 billion by 2016 as Petrobras installs an increasing amount of subsea infrastructure to be connected to its FPSo developments. As subsea wells and pipelines age, and the installed base increases, there will be a continuously increasing market for subsea services, especially maintenance work carried out by rov. this market is forecast to grow from uSd 481 million to uSd 892 million in the period 2012-16. (Source: IntSoK]



Subsea Trees

Subsea trees are expected to account for 94% of the total subsea capex until 2016. Industry estimates indicate a need for around 1,600 trees during this period. the main contractors the Brazilian market are, sorted by total value of awarded contracts, 1) cameron, 2) FMc, 3) Aker Solutions, 4) GeoG vectoGray.

Well

the well related market offshore Brazil has traditionally been dominated by rig spenddue to a high volume of exploration drilling. the financial crisis had little impact onthis market, which has almost tripled since 2006 and now has a size of around uSd 15 billion. the growth is expected to continue, with a projection to reach uSd 18.8 billion in 2016 with pre-salt Santos and continuous exploration as the main drivers. (Source: IntSoK).

PROEF - Program for Increasing the Operational Efficiency in the Campos Basin

73% of Brazils domestic oil and gas production takes place in the campos basin, where shallow water production started in 1975 and deep water reserves were discovered in 1984.

the operational efficiency (production/potential production) at the mature fields are down from 89% in 2008 to 72% in Q1 2012. the decrease in efficiency is attributed to old infrastructure and insufficient long term planning of the increased need for maintenance of old platforms, subsea systems and wells. the inefficiency is calculated to stem from subsea systems (74%) and platform topsides (26%).

ProeF will cover 31 platforms in mature fields, and is aimed at squeezing maximum out of existing resources. Petrobras will invest uSd 5.1 billion in the program, split on 3.8 bn for subsea and well, and 1.3 bn for platforms.

Opportunities for Norwegian investors:

Subsea maintenance and repair replace subsea systems well workover / interventions Platform interventions

Initial priority: equipment for immediate repair, then parts and equipment for maintenance.

2013 tenders (expected): vessels forwell intervention work including scaling.3 dynamically-positionedaccommodation and maintenance units(uMes).

2014 and onwards: replace a wide range of subsea systems such as risers, manifolds and production lines. Simplification and standardization of equipment at mature platforms.

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www.howtodobusinessinbrazil.comcurrent norweGIAn ActIvIty In BrAzIL


Norway has had commercial ties with Brazil since traveling salesmen from the fish hook producer Mustad did extensive sales visits around the country before 1900. Allegedly, in at least two native languages of the Amazon basin, the word for (metal) fish hook is mustad.

CURRENT NORWEGIAN ACTIVITY IN BRAZIL

throughout the last century, norwegianshipping companies increasingly establishedoperations in Brazil, and since the mid1990s there has been a large (andcontinuing) influx of oil/offshore companies.today, around100 norwegian companieshave established subsidiaries in Brazil, anda wide range of others are represented byagents.

More than 50% of the norwegian companies in Brazil have been established after year 2000, and more than 75% of allnorwegian investments have been madesince 2009. Hydro made norways largest

corporate investment ever when it acquiredthe Brazilian industry giant vale for uSd 4.9bn in 2009. However, aggregated norwegian oil&Gas investments by far eclipse this number.

the oil&Gas sector dominates thenorwegian business landscape, representingmore than 50% of the companies. About25% of the companies are in the maritimesector, and the industry sector accounts for16%. rio de Janeiro is the most popularlocation, being home to more than 8 out of10 norwegian companies.

Percentage of Norwegian companies in Brazil per industry sector. Half of the companies are in the O&G industry.

Offshore installations, Peregrino oil field


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10% of the norwegian companies have 500or more employees, topped by Hydro withmore than 4000. All in all, norwegian companies employ more than 15,000 peoplein Brazil.

8 companies have made more than 90%of the total norwegian investments inBrazil: Aker Solutions, doF Subsea, Hydro,PGS, Sn Power, Statoil, umoe Boienergyand yara.

(Source for all numbers in this chapter:norwegian Investments in Brazil, reportfor Innovation norway by InventureManagement, 2013.)

Statoil Present in Brazil since 2001, Statoil todayis the second largest oil producer in Brazilafter Petrobras. Statoil is operates the Peregrino field, about120 km offshore. the Peregrino operationis Statoils largest project outside of norway.Around 40 norwegians work for Statoil inBrazil, with around 800 employees in totalincluding contract workers.

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RISKSDoing business in Brazil exposes a company to other types of risks than in Norway. But the Brazil related risks are manageable and do not limit the operations of companies to a great extent.

Political/Economic Risks

Macro factors: Brazil is a stable democracy which has shown a positive social development and consistent economic growth over the last decade, also throughout the financial crisis as one of very few economies.

the Brazilian real (BrL) has weakenedover the last year, which has had an impacton the international value of Brazilian assets,notably the Petrobras stock value. this isseen as a natural correction, after severalyears of high central Bank interest rates inorder to contain inflation. the high interestrates led to an influx of currency investmentsin the real, driving up the exchange rate. thecentral Bank has lowered the interest ratesas the economic situation has stabilized,and the resulting lower real value seems toindicate a more long-term natural level.

For political issues related to Petrobras governance, see the chapter Brazils challenges.

Bribery and Corruption

In 2012, Brazil was ranked 69 in transparency Internationals corruption Perception Index (cPI). corrupt practices do exist, but are more prevalent in public administration and particularly in connection with larger projects such as infrastructure construction. the business community is not affected in a strong way. It is perfectly possible to run a business in Brazil without paying any bribes whatsoever.


www.howtodobusinessinbrazil.com rISKS

Be aware of:

officials creating a problem to sell a solution. Public processes are complex, and it is not uncommon for a foreign company to discover that it has made a wrong turn or skipped a step in a procedure, only to realize that this is not easily reversible. when stuck, it can be tempting to buy a quick solution to resolve the problem. this should always be avoided! In addition to being illegal and unethical, it could result in even bigger problems down the road.

Middlemen or agents offering shortcuts for an extra fee. It is common to use middlemen (despachantes) to deal with the practical issues of the bureaucracy on your behalf, but any shortcut for an extra fee is inadvisable. this also goes for registrations with Petrobras, authority permits etc. It is not necessary and can be very costly.

Handling the problem:

the best way of avoiding unwelcome solicitations for remuneration is to pay close attention to all the detailed steps and requirements of official processes. If all procedures have been followed, there is no problem where you can buy a solution. this also goes for customs clearance of imported goods any minor discrepancy, for example in the shipping documents, can stall a shipment, and retrieval can be costly and time consuming.

Fostering an anti-corruption mindset in the company and compliance of anti-corruption standards are important measures, and a clear management responsibility.

Legal Risks

Local labor law is complex and onerous and requires careful handling to avoid incurring potentially expensive liabilities.

the legal framework changes frequently, and needs to be monitored closely in order to avoid inadvertently breaking regulations.

Security and Crime

the security situation in rio de Janeiro has improved substantially over the past few years, but normal common-sense precautions should be taken, such as avoiding deserted streets and beaches at night. otherwise, daily life is not impacted by security concerns.

Operational Risks

running a company in Brazil poses a number of risks related to the different operational activities.the main risks and mitigation strategies have been included in the relevant chapters of this guide. General issues that by experience have cost norwegian companies considerable time and money:

not managing cultural issues (may seem like a soft issue, but has led directly to large losses for major norwegian companies).

Failing to manage the complex administrative/regulatory framework (particularly in a start-up phase).

not doing a thorough enough job with local recruitment (especially at management level)

not having a long enough time horizon for the market entry (it takes longer to get into a sales position than in some other markets).

trying to remote-control the operations from norway (very challenging).

not making dedicated resources available at HQ to follow up closely with the Brazil operation.

underestimating the need for a constant presence and frequent personal contact with buyers.

not doing proper background checks of partners and business counterparts (commonly skipped).

Project delays are expected in Petrobras construction projects, making long term planning key to successful operations.

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LOCAL CONTENT CONSIDERATIONSLocal content requirements in Brazil are now a reality that cannot beignored by international suppliers and sub-suppliers. However, thosewilling to adapt and establish some kind of presence in Brazil have largelybeen able to secure good margins, turning local content challenges intobusiness opportunities over time.

1 PwC poll O contedo local nos empreendimentos de petrleo e gs natural2 Brasil Energy, Local Content Made Simple, 06.02.2013.

Introduction

Brazil, inspired by countries like norway and the united Kingdom, has enacted local content policies with the main goal of stimulating its domestic industry and raising local skill levels. Local content discussions started in the late 1990s, when the Brazilian oil exploration and production market was opened to Iocs. Brazils local content guidelines were drafted in 2004, but the rules have only recently started to be enforced by the authorities through the need of independent certification and audits.

the local content framework set up by AnP is however fragmented through several legal and administrative texts, and its interpretation by the authorities and certification agencies has been changing constantly. this requires significant time and effort by the suppliers to plan and ensure compliance. nearly 70% of respondents in a recent poll targeting oil & gas professionals in Brazil indicated that the Brazilian local content framework is not clear or straightforward enough. 1

Local Content Complexity and Levels

even the head of Brazils local content office within AnP admits the lack of simplicity of the rules, and AnP is currently conducting a review process aimed at being implemented by July 2013: the complexity of local

content [rules] is high () and we want to take out as much of the possibility of ambiguity and different interpretations as possible. 2

As of round 7 (conducted in 2005), bidding rounds for oil & gas blocks in Brazil have included a pre-established range of local content as a basic requirement. together with price (signature bonus) and the so-called minimum exploratory program (PeM), local content commitments for the overall equipment and services to be used in connection with each block will directly interfere in the final result (more recently accounting for 20% of the final result of the bidding).

According to the analysis conducted by Inventure Management with AnP data, which excludes local content commitments for onshore blocks (which tend to be higher due to simpler technology already available in Brazil), the average local content required for related equipment and services is shown below. It is important to stress that to achieve this rate operators may waive local content for some suppliers and impose 100% on others.

Local content requirements for offshore blocks. Onshore blocks have higher requirements. (Source: ANP, Inventure Management analysis)


www.howtodobusinessinbrazil.com LocAL content conSIderAtIonS

the tenders are therefore the legal drivers for local content on a macro level, as the operators need to prove that they have reached the rates they committed to under their licenses. the operators, as such, pass their overall commitment down the supply chain according to their own discretion to suppliers and sub-suppliers aiming to get a weighted average at least equal to the commitments they made in order to avoid penalties.

Suppliers and sub-suppliers are in turn only bound by the terms of the contracts signed with their immediate clients (operator, ePc companies, shipyards, etc.), which normally factor in contractual penalties in case of non-compliance of negotiated local content rates. In other words, authorities can only fine operators; suppliers and sub-suppliers only need to follow what they have agreed contractually with their immediate clients.

Sub-suppliers normally receive request for proposals with a pre-determined local content rate indicated by their customers, though this can normally be negotiated between the parties as one of the key contract terms along with quality, price and date of delivery.

the actual results so far show that in most cases the local content achieved has been less than that committed: according to AnP, the latest audits conducted in 2012 found most offshore blocks falling 25-30%

short on local content commitments, with significant fines being imposed on operators. this has led to discussions on making the rules more flexible and pragmatic in a way that they will not cause significant damage to the overall oil & gas industry.

At the time of writing of this report(Q2, 2013), ANP is conducting a publicconsultation with the industry toadapt and simplify the local contentcalculation rules (Resolution No.36/2007). Marcelo Mafra, head of local content atAnP, also indicated in January 2013that there could be a future possibility ofincluding the servicing and maintenance ofdrilling rigs in the calculation of localcontent, thereby alleviating the overall localcontent pressure.

Local Content Requirements: A Challenge That Also Brings Opportunities

despite higher costs of sub-components and services, suppliers can actually benefit from local content rules: in addition to costs, margins are also normally kept higher when local content is demanded. As an example we can point out the contract between Kingfish and the Brazilian shipyard oSX, which priced the vessels at almost twice what they would cost in a chinese yard.

27



even taking the higher production costs inBrazil into account, the margins still seem tohave been considerably higher, according toan analysis made by Financial times. Foreign companies willing to adapt theirstrategy to local content requirements inBrazil could be well positioned to benefitfrom the demand fueled by the local contentrules. Achieving local content can be done invarious ways. A company doesntnecessarily have to establish its ownproduction facilities in Brazil, an operationalpartnership with a local supplierwould often be enough. But in order toget local content at all, the companyMuSt establish a local subsidiary.

Local Content Implications for Suppliers

the performance of suppliers with regard tolocal content is measured throughoutthe life of a project. each level of suppliersand sub-suppliers needs to prove thelevel of local content through certificatescommissioned by them and issued byan authorized independent local contentcertification company (examples includednv and SGS). this is in general aconvoluted and time consuming process. the methodology for local content calculationdefines three categories:goods, services and systems/sub-systems(which is basically a combination of theformer two). In practice, requirements forlocal contents in services have so far beenless strict than those for products, as longas the service company invoices locally fromBrazil; nonetheless, in theory specific rulesare in place for the certification of servicesconducted with non-Brazilian professionalsor equipment. Moreover, according to a recent studycommissioned by AnP, despite more strictlocal content rules, the market is open forand dependent on international companies.they still dominate the Brazilian market formore complex equipment and systems, withover 80% of the aggregate value of offshoreinstallations coming from predominantlyinternational companies.

Local Content Rate = 1 ( ) * 100 = 50%150300

Local Content Rate = 1 ( ) * 100Xy

Example: Quick-closing valve (illustrative figures)


www.howtodobusinessinbrazil.com LocAL content conSIderAtIonS

Example: Calculation of LocalContent for Products the formula for calculation of the localcontent rate for products is relatively simpleas shown below, though its interpretationis not as straightforward (and subject tochanges by AnP in 2013 following thepublic consultation mentioned above).

X = total value of imported parts/components/raw material (cIF + Import tax)

y = Sales Price (excluding local taxes) nB1: the final invoice must be submitted from a Brazilian company

nB2: the margin added locally is automaticallycounted as local content by the formula

nB3: due to complex/changing interpretation by AnP and certification agencies, constant validation and follow-up is important throughoutthe process.

Local content developmentplan for products. (Source: Inventure Management.)

29



Recommended Activities for Local Content Development

CONTENTS ESTABLISMENT AND MARKET ENTRY

32 Introduction

33 Market Entry Considerations

35 Available Sources of Financing and Support

37 Company Establishment

39 Visa Requirements

41 Expat Issues

44 Market Entry - Building Sales

46 Petrobras Supplier Certification

The Critical First 12-24 Months

Copyright: Elder Vieira Salles

HOW TO DO BUSINESS IN BRAZIL

INTRODUcTIONwww.howtodobusinessinbrazil.com

INTRODUCTION

Brazil offers vast opportunities in the Oil&Gas and related industries. However, entering this market presents a specific set of challenges, which need to be met with an equally specific set of solutions.

The Crucial First 12-24 Months

The first 12-24 months is the critical start-up phase where many foreign companies get absorbed by bureaucracy and complex administrative requirements.

During this crucial period of time, all administrative and operational systems need to be established and adjusted, the company needs to start paying taxes, report to the authorities, hire and manage employees, and relate to the local legal framework. At the same time, the company must build sales and get certified as a supplier to key customers.

Experience shows that a common mistake is underestimating the administrative burden and legal complexity of establishing and running a company in Brazil. If the resource base is too small, it can be very challenging to gain enough critical mass to get into a sales position, if at the same time considerable efforts have to be diverted into time-consuming administrative issues. The key to survival is having very well defined and controlled processes for all business functions.

Entry strategy depends on your offering. The table is a very rough rule of thumb - any combination could be possible.

33

MARkET ENTRy cONSIDERATIONS

PART 2: ESTABLISHMENT AND MARKET ENTRY


MARKET ENTRY CONSIDERATIONS

Dedicated Resources Need to Be Made Available

A successful market entry in Brazil requires dedicated support from the mother company, in terms of personnel, resources and a long term perspective.

It is not uncommon that companies approach Brazil with a toe in the water strategy, investing a minimum to see if interesting opportunities materialize. This lowers the risk, but also poses a dilemma: In many cases a larger set-up is necessary to capitalize on these opportunities.

A chain of market dynamics:It is costly to operate in Brazil. To offset the extra cost, you need higher revenue. To handle higher-revenue opportunities, you need a higher operational critical mass. To be able to build higher critical mass, you need to enter the market with a larger footprint.

Making resources available at the mother company, perhaps dedicating some of the companys key personnel to the Brazil project over a longer time, contributes to increasing the footprint.

But it is also important to get operational in Brazil as quickly as possible. There are numerous examples of foreign start-ups entering Brazil with a very limited resource base, in some cases leading to situations where the company lacks the operational clout to break into the market while at the same time carrying the high cost of an expatriate manager for a prolonged period of time.

Business Set-Up According to Your Product/Service

These are the 3 common entry options. In addition, acquiring an existing Brazilian company is a possibility. In general: the higher the service content of your offering,


MARkET ENTRy cONSIDERATIONSwww.howtodobusinessinbrazil.com

the higher the need for a physical presence in Brazil.The two most common options:

Agent/representative

Establish subsidiary

In some cases it would be necessary to establish a legal entity in Brazil in order to operate on the Brazilian market and participate in bidding processes etc as a Brazilian company, even if the company doesnt intend to set up operations in Brazil. In this case an option is to open a subsidiary and let it sleep, with no staff and no transactions. If/when you later would like to start physical operations in Brazil, the company will immediately be ready for use.

Establishing a joint venture can be a good option where your company and a Brazilian company complement each other well. It will also add another layer of operational challenges on top of the normal Brazil issues. There should be a very specific reason to set up a JV instead of opening a subsidiary, given the additional coordination and administrative issues.

A fourth option is to buy an existing Brazilian company. We will not describe the process here, as it is a different type of approach with its own, separate considerations.

Foreign companies are commonly offered to buy a sleeping/newly established company in order to get started more quickly. However, the bureaucracy around necessary alterations of bylaws and registrations generally makes this just as time consuming and costly as starting a new company from scratch. In practice, this normally saves neither time nor money, and can add potential risks.

Selling Through a Brazilian Agent/Representative

A number of Norwegian companies commercialize their products (and in some cases also services) through a Brazilian agent or representative. This can work out well for suppliers that manage to become an

important part of the portfolio of a focused and efficient agent.Advantages:

Low investment costs

The agent already has an established industry network, can follow up on opportunities and is familiar with Brazilian regulations, requirements and business practices.

Disadvantages:

Low degree of control with the business development.

coordination and reporting issues.

Invoicing from outside of Brazil generally adds at least 25% in extra taxes (see the Paying Taxes chapter).

Establishing a Subsidiary

Establishing a physical presence in Brazil is increasingly becoming a business necessity, for various reasons:

you cannot obtain local content without having a subsidiary in Brazil.

A continuous presence is necessary to maintain and develop client relationships. An agent might not be able to give enough attention to your company.

Increased political pressure for local content (a part of the product must be produced in Brazil) makes it an advantage, and in some cases a requirement, for foreign suppliers to have production or assembly functions in Brazil.

Invoicing from Brazil will avoid 25% of additional taxes levied on invoices from abroad (see the Paying Taxes chapter).

In order to qualify most goods/services for the Petrobras Master Vendor List and other supplier registries, a legally established local presence is necessary. (See also the Petrobras Supplier certification chapter.)

35

AVAILABLE SOURcES OF FINANcINg AND SUPPORT



AVAILABLE SOURCES OF FINANCING AND SUPPORT

Norwegian companies preparing to expand internationally can benefit from several institutional sources of funding

Innovation Norway

Innovation Norway (IN) is the Norwegian governments official trade representative abroad, and aims to assist Norwegian businesses grow and find new markets. IN has a local office in Rio de Janeiro, which provides local assistance and counseling for Norwegian companies.

Services:

Market knowledge and advisory Work space and practical assistance Financing services through Norwegian district offices Network service

More information:www.innovasjonnorge.no/kontorer-i-utlandet/brasil/


AVAILABLE SOURcES OF FINANcINg AND SUPPORTwww.howtodobusinessinbrazil.com

INTSOK

INTSOk - Norwegian Oil and gas Partners - was established by the Norwegian oil and gas industry and the Norwegian government. INTSOk is an effective vehicle for promoting the Norwegian offshore industrys capabilities to key clients in the Brazilian market, as well as providing market information to its partners.

Services:

Market entry services to INTSOk partners: Free of charge at a maximum of 5 days per year per market

Access to the INTSOk Oil and gas Advisor in Brazil

client seminars, workshops with selected topics

Receiving Brazilian companies in Norway that are exploring partnerships with Norwegian companies

More information: www.intsok.com

GIEK Garanti-Instituttet for Ek-sportkreditt

Financing Norwegian Exports: gIEk guarantees on behalf of the Norwegian government credits to purchasers of Norwegian exports. With assistance from gIEk, exporters can offer credit or finance without bearing the entire risk themselves. gIEk secures competitive terms for the industry and promotes the export of Norwegian goods and services and investment abroad.

Services:

guarantees for buyer and supplier credit, pre-shipment, bid bonds and tenders, investments, building loans and letters of credit.

credit insurance.

More information: www.giek.no/produkter/en

Export Credit Norway

Services:

Provide loans to Norwegian and foreign companies buying capital goods and services from Norwegian exporters.

Manage the whole lending process, including guidance to export credit financing, loan application processing, documentation, disbursement and loan administration.

The company is fully owned by the Norwegian government, administered by the Ministry of Trade and Industry and has been operational since July 2012. By year end 2013, total lending is estimated to USD 10 billion. More information: www.eksportkreditt.no/en-gB/About-the-company/

Nopef the Nordic Project Fund (Nordisk Eksportfond)

Nopef can finance up to 40% of pre-entry feasibility studies for international business set up, in the form of a loan that can be fully or partially converted into a grant pending final project report approval.

A company is eligible for Nopef loans if the company:

Has fewer than 250 employees and a turnover less than 50 million EUR.

Is operational in the Nordic countries. Has experience in the same business

area as the project. Has sufficient financial and human

resources relative to the size of the project.

Has been operational for at least one year

Is not already established in the project country.

More information: www.nopef.com/pages/eng/financing.php

3 to 4 months is a realistic time frameto get a company fully operational.

37

cOMPANy ESTABLISHMENT



COMPANY ESTABLISHMENTThe most common way for foreign companies to establish a presence in Brazil is to set up a Brazilian subsidiary

Setting up a company in Brazil can be a long and time-consuming process. It involves a number of steps which all need to be carried out in the right order and with a great attention to detail. Short-cuts are inadvisable, as this is very likely to halt the whole process and create additional delays.

When the process is well managed, however, and foreign investors are aware of the necessary documentation and legal requirements, things can run relatively smoothly.

Deciding on Company Type

Brazilian law allows for several types of corporate entities. In most cases a Limitada (Limited Liability company) is the preferred option. In some cases the S.A. (Joint stock company - Sociedade Annima) can be an option.

Limitada (Ltda.)

Operates as a simplified company of limited liability (Ltd), or an AS in Norway. The main difference is that a Limitada does not have publicly tradeable shares, and it is not required to have a board of directors. Further, there are no mandatory auditing requirements, and the operating costs are relatively low.

S.A.

Operates basically like a Ltd or a Norwegian AS. This could be an option for larger companies with a more diversified shareholding, and with a need for easier access to external financing. An S.A. must be audited once a year.

Establishment Process

This is a brief overview of the process of establishing a company in Brazil. Each step has its own procedures and sub-steps, which depend on the specifics of the company. Initial Preparations

1. Select a company name and check availability.

2. Select a qualified attorney-in-fact to legally represent the foreign owner, and prepare the power of attorney.

3. Register the foreign owner with the Brazilian central Bank.

4. collect necessary documents, such as the owners certificate of Incorporation.

5. The Power of Attorney and certificates of Incorporation must be authenticated by a public notary (Notarius Publicus), and then officially verified by the Brazilian Embassy. In Brazil, the documents must be translated into iPortuguese by a certified translator.

6. Apply for a Brazilian company registration number (cNPJ) for the foreign owner.

Legally Incorporating the Company

7. Draft the companys articles of association (contrato social) and establish the company by public deed (Limitada) or in a general meeting of incorporation (corporation).

8. The newly formed company can then register its corporate acts with the local Board of Trade (Junta comercial) in order to obtain a company registration number (NIRE).


cOMPANy ESTABLISHMENTwww.howtodobusinessinbrazil.com

9. Register for federal and state taxes, receive a company tax number (cNPJ).

10. By completing this process, the company will also be automatically registered with the National Institute of Social Security (INSS).

11. The company will now be automatically registered with the government Savings Bank for social security purposes, caixa Economica Federal (cEF), with an account in the Federal Unemployment Fund (FgTS).

12. Depending on the area of activity, the company might need to apply for a specific environmental or sanitary license before obtaining the cNPJ. Receiving the cNPJ marks the start of the company as an independent legal entity and allows it to sign contracts. However, it can still not employ people or invoice customers. A few further steps are required to make the company fully operational.

Getting the Company Operational

13. Open a Brazilian bank account14. Register the paid foreign share capital

with the central Bank15. Register the company with municipal tax

authorities16. Apply for permission to issue invoices.17. Register with the Employers

Association and one of the Labor Unions, even if the company doesnt have any employees yet.

18. Register employees with the National Institute of Social Security (INSS)

19. Register employees in the companys account with the Federal Unemployment Fund (FgTS)

20. Notify the Ministry of Labor of employees

21. Apply to the municipality for an operations permit (Alvar).

Time Frame

When the whole process is well managed and no specific problems occur, each of the three phases will take around 30 days. Experience shows however that it rarely takes less than 4 months to get a company fully operational. A lot of time is often lost in the preparation phase, and poor communication and coordination are factors that often cause delays.

Corporate Capital Needs

There are generally no minimum corporate capital requirements in Brazil, except for a few specific sectors. The optimal amount will therefore depend on variables such as the type of activity, planned investments, working capital requirements, expected operational cash flow and risk profile. the amount of planned imports may also be a factor as import licenses are linked to an evaluation of companies perceived financial solidity.

Although there is no specific requirement regarding the optimal amount of corporate capital, at least R$ 150.000 is recommended for service providers and significantly more for industrial players depending on the nature of their activity.

90 days. After expiry, renewal only after 180 days.

In addition, a foreigner may obtain a permanent residency/work permit in Brazil by marrying or having a child with a Brazilian citizen.

39

VISA REqUIREMENTS



VISA REQUIREMENTSOverview

Non-Brazilians need a visa to work in Brazil. The applicable work visas are listed in the table below. All of them are multi-entry visas.

NEW from 2012:An expats spouse is now permitted to get a work visa. The visa is valid for the duration of the expats stay in Brazil.


VISA REqUIREMENTSwww.howtodobusinessinbrazil.com

Is it Necessary to Apply for a Visa for Regular Business Trips to Brazil?

Norwegians automatically receive a 3 month visitors visa on arrival in Brazil. The maximum allowed stay is an accumulated 6 months per 12 month period. Business meetings can be conducted during this time, but the visa is not intended for work activities such as rendering services to clients. Also, you are not allowed to embark on offshore installations with only a visitors visa.

IMPORTANT: On arrival in Brazil, all foreigners need to specify the purpose of the visit on the arrival form. If you dont have a specific work visa, select Business and NOT Work. If Work is indicated and there is no work visa in your passport, you are likely to be refused entry and put on a flight out of Brazil at your own expense. This actually happens quite frequently.

Obtaining a Visa

The visa process involves a substantial amount of forms and attestations, as well as extensive interaction with relevant authorities. It is highly recommended to let a specialized company handle the visa process.

How Long Does it Take?

The Ministry of Labor processes a work visa in 30-60 days after all the correct documentation has been submitted, but because of the other work involved (see below), a realistic time frame is 2-3 months for the whole process.

How Much Does it Cost?

A specialized company will charge around USD 2,000 per visa for the visa types listed in this chapter, except for the 90 Day Technical Visa which should cost around USD 700. In addition, consular processing fees amount to around USD 500.

Brief Overview of the Visa Process

1. Necessary forms and attestations must be filled in according to the requirements, which vary between the different visa types. Non-Brazilian documents generally include have to be notarized at a public notary office in the country of origin, and then officially verified at the Brazilian embassy in the same country.

2. All documents are sent to Brazil, where they have to be translated to Portuguese by a state authorized translator.

3. Visa documents are submitted to the Ministry of Labor, which has a processing time of around 2 months.

4. If the application is successful, the visa will be sent to any Brazilian diplomatic station outside of Brazil, at your choice, where the visa will be available for 180 days. The visa cannot be collected in Brazil. When collecting the visa, it is necessary to present an English official transcript of your criminal record no older than 90 days, issued by the police of your home country.

5. When the visa has been collected, the visa holder must travel to Brazil within 90 days.

6. Within 30 days after arrival in Brazil, the visa holder must report to the Federal Police (Policia Federal) for registration.

7. For permanent visa holders, the Policia Federal will issue an ID card with the RNE (National Registry of Foreigners) number. This takes another 6 months. In the meantime, a stamped paper slip called Protocolo with a photo of the visa holder is issued as a temporary proof of the visa status. The Protocolo or RNE card must be presented together with the passport when entering Brazil.

Typical living costs

ExPAT ISSUES www.howtodobusinessinbrazil.com

How Much Does an Expat Cost?

Based on benefit policy and the expats family situation, the total annual cost of a Norwegian expat normally is in the range of NOk 2 - 4 million (BRL 750,000 - 1,5 million). This package normally includes apartment and other living costs, such as a car, school fees for children, home travel, and others.

Living costs

Housing costs in Rio de Janeiro and So Paulo are roughly comparable to Oslo. The

vast majority of Norwegian expats live and work in Rio de Janeiro, the petroleum capital of Brazil. Rio expats often opt for apartments in the Ipanema/Leblon neighborhoods, which are the most upscale (and expensive) areas. However, nearby neighborhoods are both pleasant, safe and with lower costs.

Rent for a 2-3 bedroom apartment in a good neighborhood can very roughly be calculated as USD 3,000 - 10,000 pr month, with Ipanema/Leblon at the higher end.

A few typical living costs:

EXPAT ISSUES

The difference between CPF and RNE, which are the two identity numbers given to foreign residents in Brazil.

...the total annual cost for an expatis normally NOK2-4 million (USD 350k - 700k)


ExPAT ISSUESwww.howtodobusinessinbrazil.com

Practical Tips for New Expats in Brazil

Social Security Number and Identifi-cation

The Brazilian equivalent of a social security number is in fact two numbers, cPF and RNE, both of them necessary in order to live and work in Brazil:

Visa for Spouse and Children

An expats spouse and children are included in the expats visa. But as of 2012, a spouse can obtain a work visa with the same duration as the expats visa. Earlier, spouses could not work in Brazil, which was a major concern for many expats.

Finding an Apartment

Apartment prices are high in Brazil (see Expat Management, previous page.) Finding a good apartment is time consuming, and could easily take a month or two. The general standard is lower than in Norway, which often makes it necessary to see a lot of apartments to find a nice one.

In Rio de Janeiro, virtually all expats are living in the Zona Sul area, with the great majority in the Ipanema or Leblon neighborhoods.

There are many real estate agents in Zona Sul which can assist in finding an apartment. The website www.zap.com.br and the Sunday edition of the globo newspaper have comprehensive listings of apartments for rent.

In So Paulo, good areas include Jardins and adjacent neighborhoods, as well as Morumbi and a few other areas. the So

Paulo traffic is congested, so it is generally a good idea to live close to the office.

Standard rental contract length in Brazil is 36 months, with the possibility of moving out after 12 months without extra costs. Moving out before 12 months generally incurs a fine of up to 3 months rent.

Security

It is easy to get a negative impression of the security situation in Brazil through news reports. But in general, working and living in Rio de Janeiro or So Paulo is unproblematic, as long as some basic common sense precautions are taken, such as avoiding poor areas at night. The security situation in Rio de Janeiro has improved a lot over the past few years.

43

ExPAT ISSUES



Opening a Bank Account

Opening a Brazilian bank account in general requires residency status, a cPF number and a proof of physical residence (such as a gas bill in your name) in the same state as the bank filial. Recommended banks include Banco Ita and Bradesco, or international banks such as HSBc and citibank.

Signing Contracts

All contract signing usually requires that your signature is verified and countersigned bya public notary office. your signature needs to be registered at the public notary office beforehand.

Vaccines, Health Services, Insurance

There is no requirement for specific vaccines for travelers to Brazil, but the Hepatitis A vaccine is recommended by the Norwegian Institute of Public Health (Folkehelseinstituttet, www.fhi.no).

Most expats buy private medical insurance in the form of a health plan (plano de saude, usually included in the salary package). The cost is normally in the USD150-500 range, depending on benefits.

Certificate and Driving

Traffic in Brazilian cities can be dense, but otherwise not too difficult to navigate for a Norwegian driver. The Norwegian driving license is valid in Brazil for 6 months after residency is granted. After 6 months, the license holder must get a Brazilian license. converting a Norwegian drivers license to a Brazilian one is a fairly straight-forward and inexpensive process.

Barring language problems, encounters with the traffic police do not represent a problem for expats in Brazil.


MARkET ENTRy - BUILDINg SALESwww.howtodobusinessinbrazil.com

It is of key importance to get operational as soon as possible, and set up a functional Brazilian organization that is able to support the commercial activities over time.

Free Up Key Resources for Commercial/Core Business

The commercial resources, which in many small subsidiaries could initially amount to just an expat manager, should be able to spend the bulk of his/her time focusing on core business and commercial activities. If the organizational footprint is too small, as discussed in the Market Entry considerations chapter, a considerable amount of the managers time may end up being spent on non-core administrative issues.

Continuous Presence and Customer Contact

In Brazil, more than in most places, to keep a momentum going and moving things forward you need to meet people face to face. Meet with the potential customers as frequently as possible, over and over and over again. A continuous presence in Brazil is key to the sales work. connect at a personal level if possible.

There are many examples of foreign companies opting to operate from abroad and visit Brazil every few months. A positive feeling about the meetings in Brazil is common, and there is often an expectancy of signing a contract over the next few months. A common situation is that the

MARKET ENTRY - BUILDING SALES

45

MARkET ENTRy - BUILDINg SALES



momentum that was created at the meetings dies out after a while, and at the next Brazil visit the sales work has to virtually start from square one again. Some companies have been using this approach for several years and continue using it, many still without a completed sale.

Brazilian Sales Force

At least one Brazilian sales resource, ideally several, is indispensable for the sake of bringing in their useful networks, connecting with potential customers, and for the sheer amount of sales visits you would want to do in Brazil. There are alternatives to hiring - you can get good sales people on a consultant basis for the initial period.

Build an Industry Network in Brazil

Actively seek out meeting places and events to build a network of international and Brazilian industry people. This is rather obvious, but nevertheless important to keep in mind.

Have a Long Term Perspective

It generally takes time to build the necessary relations to get into a sales position. Persistency and patience are necessary, not least from the mother company that wants to see a return on the investment in Brazil.

Manage the expectations of headquarters management and the Board. It can be easy to get carried away after seemingly very positive meetings, and setting the expectations too high easily backfires.

Have the funding to do a concerted effort over time. getting to the first sale is likely to take longer than you expect.

Get the Basics Right

Sales material and brochures in Portuguese. Website in Portuguese. Make an effort to learn Portuguese, or at least some, the payoff for this in Brazil is very good. A small vocabulary goes a long way. (And in addition to connecting more easily to customers, your stay in Brazil will be richer at a personal level.) Make time for some friendly chit-chat about whatever topic before getting down to business.

PETROBRAS SUPPLIER cERTIFIcATIONwww.howtodobusinessinbrazil.com

PETROBRAS SUPPLIER CERTIFICATION

The main purchaser in the Brazilian oil/offshore sector is Petrobras, accounting for over 70% of all purchases. Becoming a registered Petrobras supplier is a long and bureaucratic process, as detailed below. The same process does not apply to other Brazilian (non state-controlled) companies.

Overview

In principle suppliers to Petrobras must obtain a cRcc - Registered Supplier certification (cRcc = certificado de Registro e classificao cadastral). This is relatively straight-forward, but the approval normally takes anywhere from 3-6 months.

As a second step following the cRcc certification, it is a great advantage to be listed in the Petrobras Master Vendor List Offshore or Onshore (MVLO/MVLON, hereafter only called MVLO). Suppliers in the

list are automatically qualified for inclusion in the vendor lists of Petrobras projects, and hence receive requests for quotation. Vendors not included in the list can also be qualified as suppliers for specific projects at Petrobras discretion, especially if they can provide new or unique technology that Petrobras is interested in. But the safest route is to obtain the general qualification that an MVLO listing represents.

The process of being included in the MVLO can take over a year, and requires approval by various technical committees and even

47

PETROBRAS SUPPLIER cERTIFIcATION

PART 2: ESTABLISHMENT AND MARkET ENTRy


company visits by Petrobras at the suppliers production facilities.

This means that it could take up to two years from the start of the process until the supplier is able to participate in Petrobras tenders. Fortunately, for suppliers with

technology that Petrobras deems interesting, the relevant technical committee within Petrobras can pull the supplier through a fast-track process.

CRCC + MVLO timeline:

CRCC application process. (Source: Petrobras)


PETROBRAS SUPPLIER cERTIFIcATIONwww.howtodobusinessinbrazil.com

CRCC Registration as a Certified Petrobras Supplier

The cRcc process was previously divided into two phases, which have been merged into a single submission process in q2 2012. The long list of supporting documents are submitted online, with later presentation of verified originals. Needed information:

1. company data: basic information, categorization within the Petrobras supplier system, etc.;

2. Technical issues: specs, reference lists and reference letters;

3. Legal issues: certificate of incorporation, bylaws, certificates of good standing, legal representatives in Brazil, etc.;

4. Management and HSqE issues: standards and quality certificates (ISO, etc.); and

5. Financial documents: income statements, balance sheets, etc.

MVLO application process. (Source: Petrobras)

49

PETROBRAS SUPPLIER cERTIFIcATION



MVLO Petrobras Master Vendor list (offshore or onshore)

general regulations:

The company must, as a general principle, have a valid cRcc registration (see previous section) before the MVLO process can start.

A company without cRcc can also be included in the MVLO list at Petrobras discretion, provided that the company has a product or service that Petrobras deems needed for a specific project.

Based on the MVLO, a Vendor List of qualified suppliers is elaborated for each project.

As mentioned, for suppliers with technology that Petrobras deems interesting, the relevant technical committee within Petrobras can pull the supplier through the process a lot faster, down to just a few months.

The MVLO process is now being restructured, and the new procedures are expected to be in place by q2 2013. The aim is simplifying and shortening a process which today may take 6-18 months, depending on the complexity of the product and the timely submission and follow-up by the supplier of the documents requested by Petrobras.

CONTENTS RUNNING A COMPANY IN BRAZIL

52 INTRODUCTION

53 CULTURAL DIFFERENCES, A MISSION CRITICAL FACTOR

58 ADMINISTRATION OF BRAZILIAN EMPLOYEES

61 PAYING TAXES

65 ACCOUNTING

66 LEGAL ISSUES

68 IMPORT

73 CORPORATE SOCIAL RESPONSIBILITY


Successful Operation in the Long Term

INTRODUCTIONwww.howtodobusinessinbrazil.com

Running a company in Brazil is a work intensive exercise. Administration, finance, accounting and HR workflows have substantially more procedures, systems and reporting requirements than Northern/Western Europeans are used to

INTRODUCTION

The legal framework is complex and regulations change frequently, making it important to closely monitor and absorb the changes.

As a very raw estimate, performing an administrative/economic function in Brazil requires about three times the man-hours as performing the same function in Norway.

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CULTURAL DIFFERENCES, A MISSION CRITICAL FACTOR

It is easy for Northern Europeans to underestimate the impact of cultural differences. However, mismanaged cultural issues is one of the main contributing factors to failed establishments and unsuccessful market entries in Brazil

Major Norwegian companies have reported losses amounting to more than UsD 100 million directly related to faulty communication between Norwegian headquarters and the locally managed subsidiary. management team.

It cannot be stressed enough: Not managing the cultural issues can and in most cases will have a direct, negative impact on your bottom line. Culture may seem like a soft topic compared to real, tangible operational challenges. But if there is one piece of advice in this report that the reader is urged to remember, it is to take the cultural aspect very seriously.

Differences

Norwegians tend to connect very well with Brazilians at a personal level, sharing a similar easy-going, informal and friendly manner of communication. Based on this, it can be difficult to imagine, or even believe, that the two countries cultures in terms of doing business are practically opposites, in fact almost as far apart as they could be.

Brazilian Business Culture, From a Norwegian Point of View

Building Trust Takes a Long Time

After positive initial meetings, Norwegians will often assume quick development of the partnership. Brazilians need considerably more time than Norwegians in order to build sufficient trust to do business. Norwegians tend to build trust in others very quickly (which is not always to their advantage), and believe that the partnership is making good

progress towards an imminent breakthrough.

At the same time, the Brazilians might not feel fully committed to the project before they have built the necessary trust, and will wait before investing substantial time and resources. Time passes, and the Norwegians will often feel frustrated at the


CUlTURAl DIffeReNCes, A MIssION CRITICAl fACTORwww.howtodobusinessinbrazil.com

lack of progress and might even terminate the project before it, in the Brazilians minds, has really started.

Key point: Be in it for the long term, have the

patience to build trust over time.

Relationships Are Crucial

Brazil has a relational culture, Northern/Western europe has a transactional culture. In Brazil, the personal relations are crucial to getting anywhere, and the relational network is much more extensive than in Norway. Good relations are of course valuable in Norway as well, but it is generally not considered professional to expect that a personal contact should be able to make his/her company or public entity give you differential treatment. It could also be seen as less professional to have a too close personal relationship with suppliers or business contacts.

Northern/Western europeans can feel that people from latin cultures can be more difficult to trust - Will they be objective enough?

People from latin cultures can feel that Northern/Western europeans can be more difficult to trust - Will they help me when I really need it?

Key points:

Invest time and effort in building long-term relations.

Norwegians are e-mail people, Brazilians are phone and face-to-face people. Meetings and phone calls move things forward. An e-mail may not do that. If its important, they will call me.

Organizational hierarchy can be

complicated because of alliances and relationships. Try to find out who really has the decision making power.

You Will Not Receive Bad News

Brazilians will try to not offend others. This sometimes leads to reluctance to

transmitting bad news, in order to avoid being seen as confrontational or offensive. Brazilians will nevertheless pick up these signals from the context and cross-check the information with other sources in their richer network. Norwegians generally wont, as some Norwegian companies have learnt the hard way. When the information reaches the Norwegian manager, the problem might already have grown to a size where its more costly (or not possible) to resolve.

Good news, on the other hand, will be expressed with a conviction and optimism that Norwegians can also misinterpret, perceiving that the situation is better than it really is.

Key points:

Actively prod for information

Invest more time in verifying

learn to pick up subtle signals (this is challenging).

Opinions Are Often Stated as Facts

At the top of the list regarding miscommunication between Norwegians and Brazilians. A statement like Action X is performed like this may often better be understood as I am fairly certain action X should be performed like this, or my opinion is that. A Brazilian will pick up the signals and understand when to cross-check the information. A Norwegian would take the statement as a verified fact, which can often lead to confusion.

Its important to realize that Brazilians do this with a positive intention to help. They are actually going out of their way, offering their best opinion or solution even if they dont have the answer to your question.

Key point:

Always cross-check important information.

Higher Power Distance

Norwegians tend to minimize the hierarchical power distance between managers and

The easiness of connecting hides the fact that Norwegians and Brazilians bring very different mindsets to the table.

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subordinates (the boss should be one of the guys). Brazilians tend to maximize the distance (the boss should be a clear leader and decision maker.)

As a result of this, Brazilians at lower levels tend to be less willing than Norwegians to take independent initiatives or do a task not explicitly assigned by their supervisor. This does not imply lower work ethics or lower willingness to assume responsibility. Brazilians are hardworking and dedicated. It implies a higher inherent risk of contradicting the will of the decision maker.

Key points:

If you are Northern/Western european and have Brazilian subordinates: Communicate your intentions in a clear way. The approach of involving subordinates in processes and decisions is appreciated, but can sometimes also test the patience by being time consuming.

If you are Northern/Western european and have a Brazilian manager: Distinguish between a close personal relation and a somewhat more distant professional relation. (This is a generalization.)

Low Tolerance for Uncertainty

Maybe contrary to what a Norwegian would expect, Brazilians have a lower tolerance for uncertainty than Norwegians. This means that Brazilians tend to be more comfortable when authorities, responsibilities and tasks are clearly defined. This is also reflectedin Brazilian laws and regulations, which often aim to reduce uncertainty by regulating the possible scenarios at a very detailed level.

Key points:

Communicate clearly. Define responsibilities in a clear way.

Emotions

Brazilians are more driven by emotions than Norwegians. emotions are displayed, which is not always the case in Norway. This often increases the level of enthusiasm

and energy, but can also pull in the other direction.

Key point:

express yourself in a more diplomatic way than you might do in Norway, especially when giving negative feedback on something. What is considered a direct, constructive and factual feedback in Norway is more likely to be taken personally in Brazil.

Corruption

examples of corrupt practices can be found in Brazilian public administration, but this is not an issue in terms of general business culture. It is perfectly possible to run a business in Brazil without paying any bribes whatsoever. (see also the Risks and Challenges chapter.)

CORTEOUS

ACCOMODATING

Brazil

Norway

Global cultural types. (Source: Richard D. Lewis)

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Global Cultural Types

According to sociologist Richard lewis acknowledged theories on cultural differences, the world can be divided into three main cultural types:

linear-active: Western europe, North America

Multi-active: southern europe, south America, Africa, Arab countries.

Reactive: Asia.

LINEAR-ACTIVE

Talks half the timeGets data from stats, researchPlans ahead step by stepPolite but directPartly conceals feelingsConfronts with logicDislikes losing faceCompartmentalizes projectsRarely interruptsJob-orientedsticks to the factsTruth before diplomacysometimes impatientlimited body languageRespects officialdomseparates the social & professionalDoes one thing at a timePunctuality very important

MULTI-ACTIVE

Talks most of the timesolicits first-hand info from peoplePlans grand outline onlyemotionalDisplays feelingsConfronts emotionallyHas good excuseslets one project influence anotherOften interruptsPeople-orientedJuggles the factsflexible truth ImpatientUnlimited body languagePulls stringsMixes the socia

How to do business in Brazil - 2013 Edition

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