Introducing Natural Gas in the Brazilian Energy Matrix

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1 Introducing Natural Gas in the Brazilian Energy Matrix Oscar Prieto President and CEO - Comgás Houston November 15, 2000

2 Gas Background in Brazil 1854 The first gas company was founded in Rio de Janeiro, Brazil, for public gas lamps 1872 San Paulo Gas Company is created, future Congás, also for public light First gas stoves and heaters in São Paulo From beginning of century up to 1967 Decline of gas in Brazil, remaining companies only in Rio de Janeiro and São Paulo From 1953 to legal monopoly rights to Petrobras (E&P, transportation, sales to industries) First vehicles fueled by natural gas start to circulate 1990 s Gaspetro was founded - subsidiary responsible for the gas trade, produced or imported by Petrobras Constitution Amendment - no more legal monopoly rights to Petrobras August 1997 (Law 9478/97) - End of Petrobras monopoly CEG Privatization - Rio de Janeiro Comgás Privatization - São Paulo 1999 Start-up of the first section of the Bolivia-Brazil gas pipeline, connecting Santa Cruz de la Sierra (Bolivia) to Campinas (São Paulo) 2000 Start-up of the second section of the Bolivia-Brazil gas pipeline, connecting São Paulo to Rio Grande do Sul (Brazil)

3 Brazilian Energy Matrix Primary Energy Demand in Brazil Oil and by-products 31,9% Natural Gas Market Share São Paulo State Buenos Aires Others 6,6% Hydro and electricity 37,1% Fuel wood and charcoal 10,6 % Natural gas 2,8% Sugar cane by products 11% 98% 81% 60% 2% 19% 40% Natural Gas Other fuels

4 Natural Gas in the Primary Energy Demand % USA Mexico Argentina Venezuela Japan France Italy Spain England Europe World Brazil ` Source CEDIGAZ and British Petroleum

5 Previous inhibitors to expansion Supply-constrained Petrobras monopoly Public gas companies Frequent management changes in companies (Govt. appointees) Cash-starved Bureaucratic procedures Lack of market focus Overstaffed operations Poor planning & cost-control

6 Brazil macroeconomic scenario INFLATION RATE - IGP-DI (%) UNEMPLOYMENT LEVEL (%) BRAZIL S SHARE IN THE DIRECT INVESTMENT GLOBAL FLOW FOR DEVELOPING COUNTRIES P (%) REAL GDP GROWTH (%) % 4,5 35, ,00 3,5 25, ,00 2,5 30,40 15,00 26,70 24,10 20,80 23,80 10,00 19,90 18,50 5,00 0,00 32,30 28,50 24,30 18,70 17,40 21,20 16,50 14,10 11,80 7,80 11,70 6,40 6,50 3,60 3,70 1,50 2,50 15,60 9,80 7,00 4,50 2,40 Years 2 1,5 1 0,

New scenario Economic growth/stability in Brazil Bolivia/Brazil gas pipeline and others gas pipelines Marketing opening for exploration Privatization

7 New scenario Economic growth/stability in Brazil Bolivia/Brazil gas pipeline and others gas pipelines Marketing opening for exploration Privatization of dealers Risk of energy lack of supply Thermoelectric Emergency Program (36 between 2001 and 2004) Consolidation of the sustainable development concept

8 Sustainable Development Concept Blending of economic growth, social justice and environmental balance 4 Surviving factor of modern companies 4 Integrated action among government, companies, community and non-governmental organizations Company Roles Offer products and servives with cycle that considers: 4 Clean technology/production 4 Safety during consumption 4 Low risk to the society 4 Final disposition without environmental impact

1 billion/year US$85 US$85 billion in investments from 1995 to 1999 35 million inhabitants Successful

9 The State of São Paulo The The most industrialized state in the Country 38% of Brazilian GDP - US$ 284 billion 34,5% of Brazilian exports - US$ 18.1 billion/year US$85 US$85 billion in investments from 1995 to million inhabitants Successful privatization program - partnership with private institutions investments to maintain, increase quality and expand services government focused on basic services

10 Comgás in numbers 128 years operating in the State of São Paulo 22 municipalities served It currently serves: 500 industrial consumers 315,000 Residential Consumers 7,000 Commercial Consumers 21 NGV fuel stations Distribution of 4.3 million m 3 /day of NG km of distribution networks Gross Sales: R$ million R$ million employees

11 Comgás concession area Key hub for the convergence of four supply sources: Northern concession area Campos Basin Santos Basin Bolivia-Brazil Pipeline Southern Leg COMGAS concession area Concession area - 36% of Brazil GDP Municipalities Population Million Customers - 295,000 Households million Electricity customers - 6 million Southern concession area = known power plant and large cogen projects (>100 MW) Gas from Campos Metropolitan area Gas from Santos basin

12 Regulatory framework 30 years concession contract with a 20 year extension. 12 year exclusivity for large consumers. Non discriminatory gas sales. Maximum tariffs with allowance for discount Price cap with 5 year cycles. Inflation adjustment on yearly basis and intermediate reviews in case economic / financial balance is broken Opening of gas purchase Every 5 years a minus X will be applied in line with efficiency gains and based on Return on Assets After first five years the overall tariff structure will be reviewed setting Distribution Margins for each sector and establishing: customer charges, capacity charge and commodity charge Other Income to be shared with consumers

13 Comgás A combination of strengths BG International World Class Operator International and Latin America experience in large gas distribution companies Shell Gas & Power Brazil and Latin America key player for > 90 years Key industrial market know-how and Marketing skills Common Strengths Integrated players in the Southern Cone Upstream positions in Argentina, Bolivia and Brazil Partnership in BBPL

14 Market Overview Majority of the sales from industrial Gas volume Others Resid. 2% 6% Comm. 4% Despite the reduced number of residential and commercial customers, these segments represent a significant part of the margin. Indust. 88% Net Revenue Total = 1206 mmcm Industrial 65% Volume (MM m3) Vol / day # Clients Revenue (R$ MM) Residential 74 0, Commercial 54 0, Industrial , Others 32 0, Total (99) , Total (98) , Commercial 9% Residenti al 24% Total = R$ 239 MM Others 2%

15 Targets Avg. Annual Growth 14.6% Main Goals mmcmd average Power generation (IPP) Power (cogen) NGV Commercial Residential Industrial Approximately 286 thousand new consumers from 1998 to 2004: Industrial Residential Commercial NGV n/a 20 Cogen/IPP Total n/a Yr 1 Yr 5 Yr 10 Yr 20

Natural gas vehicles The NGV market is still in its beginning in Brazil Buse s Taxis Fleets World NGV's in use Argentina 385,500 Italy 290,000 Russia 205,000

16 Natural gas vehicles The NGV market is still in its beginning in Brazil Buse s Taxis Fleets World NGV's in use Argentina 385,500 Italy 290,000 Russia 205,000 USA 40,000 New Zealand 25,000 Canada 17,200 Brazil 14,000 Colombia 4,600 Indonesia 3,000 India 2,500 Pakistan 2,500 Germany 2,415 China 2,000 Venezuela 1,500

17 Potential upside CORE BUSINESS Higher realized unit gross margin for natural gas premium (industrial and large commercial) Higher tariff for NGV approved Additional volume from small or higher risk industrial customers Faster network expansion and market penetration in commercial and residential Lower capex through inter-segmental synergies,scale, and experience Faster penetration of new applications Stricter environmental regulations and enforcement UNREGULATED BUSINESSES NGV retailing and compression Power marketing Cogen and distributed generation development Energy asset management services Risk management services Portals or on-line exchanges Financial products and services Multi-utility services PARTNER OPPORTUNITIES Strategic partnership in NGV retailing Monetization of upstream reserves Partnerships in gas and power wholesaling Power project development

18 Potential downside MAJOR RISKS More intensive tariff reductions due to high ROE Loss of industrial customers to competitors after 2011 Lower than anticipated customer acceptance of natural gas in commercial and residential Availability of suitable contractors and outsourcing partners Higher capex for residential and commercial expansion More aggressive competitor response Crude oil price Higher gas supply costs Macroeconomic downturn, political instability Continued alternative energy subsidies ICMS negotiations for power contracts Short term targets at risk due to delays in licences / permits

19 Natural gas Challenges for expansion in Brazil 4Offer increase 4Increase the market (volume and applications) 4Development of the gas culture 4Increase NG participation in the primary energy demand 4Increase efficiency in the transportation process 4Cost reduction 4Availability of capital for investments (Capex) 4Partnerships with equipment suppliers 4Development of new businesses 4Economic and institutional stability

B R I C S B R A Z I L Foundry Industry Remo De Simone President Brazilian Foundry Association - ABIFA

B R I C S B R A Z I L Foundry Industry Remo De Simone President Brazilian Foundry Association - ABIFA B R I C S FOUNDRY FORUM RUSSIA 2015 B R A Z I L and Foundry Industry Overview / Trends Remo De Simone President Brazilian Foundry Association - ABIFA MAIN TOPICS 1) Brazil in figures 2) Infrastructure