Offset Strategy of the Brazilian Air Force - Offsets 2011 Conference - Sofia, Bulgary - Dióegnes L. Neto
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Apresentação efetuada na conferência "Offsets 2011, em Sofia, Bulgária. O objetivo era apresentar a atual política do MD sobre acordos de compensação, particularmente no contexto da Força Aérea Brasileira.
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Offset Strategy of the Brazilian Air Force - Offsets 2011 Conference - Sofia, Bulgary - Dióegnes L. Neto
- 1. BAF CommandMinistry of Defense Air Force Secretariat for Economy and Finances (SEFA) Offsets 2011 – Sofia, Bulgaria Offset Strategy of the Brazilian Air Force A comprehensive approach Lt Col Diógenes Lima Neto M.Sc., MBA
- 2. BAF CommandMinistry of Defense Air Force Secretariat for Economy and Finances (SEFA) Offsets 2011 – Sofia, Bulgaria Objective • To have a better understanding of the BAF’s offset strategy, with special attention to the relationships between commercial contracts, offset agreements and buyer’s credit operations. Air Force Secretariat for Economy and Finances (SEFA)
- 3. BAF CommandMinistry of Defense Air Force Secretariat for Economy and Finances (SEFA) Offsets 2011 – Sofia, Bulgaria Agenda • Brazilian Military Offset Focuses & Tendencies • Offset Strategy of MoD and BAF • BAF’s Offset Features & Portfolio • SEFA in context • Negotiating Commercial, Financial and Offset's Agreements – a comprehensive approach • Offset Agreements: Controls and Auditing
- 4. BAF CommandMinistry of Defense Air Force Secretariat for Economy and Finances (SEFA) Offsets 2011 – Sofia, Bulgaria Brazilian Military Offset Focus • NSD is the driver for new high-profile programs, under MoD-issued guidelines for Industrial Participation. • Other government domains than defense will be increasingly concerned on possible benefits of industrial participation and offsets, such as MoI&T, MRE, MTran, MME and BNDES, specially for large national projects such as high-speed rail transportation and hydrocarbons offshore prospection.
- 5. BAF CommandMinistry of Defense Air Force Secretariat for Economy and Finances (SEFA) Offsets 2011 – Sofia, Bulgaria Legal Provisions on Defense Offsets • National Policy Defense – Decree nr. 5484, 30 Jun 2005 • National Strategy of Defense – Decree nr. 6.703, 18 Dec 2008 • National Defense Industry Policy (NDIP) – Order nr. 899/MoD, 19 Jul 2005 • Strategic Actions towards NDIP • Normative Order nr. 586/MoD, 24 Apr 2006 • Policy and Directives on Offsets – Order nr. 764/MoD, 27 Dec 2002 • Joint-workgroup on improving national defense industry capabilities – Joint-Order nr. 1068, 21 Jul 2008 (MoI&T and MoD)
- 6. BAF CommandMinistry of Defense Air Force Secretariat for Economy and Finances (SEFA) Offsets 2011 – Sofia, Bulgaria Brazilian Defense Industry’s Synergy Industrial Associations • Defense and Security Materials • Aerospace • Regional Government • MoD • MoI&T • MoC&T •Agencies Political • President • Legislations • Ministers • Parliamentary Front on National Security
- 7. Defense and Related Policies • Brazilian Agency for Industrial Dev. - ABDI • National Development Bank – BNDES National Policy Defense National Strategy of Defense • Defense Industrial Complex • Research and Projects Financing – FINEP • Public and Private Universities • Navy Command • Army Command • Air Force Command
- 8. BAF CommandMinistry of Defense Air Force Secretariat for Economy and Finances (SEFA) Offsets 2011 – Sofia, Bulgaria Main civilian players: Defense Industry Associations Brazilian Aerospace Industries Association Brazilian Association of Defense and Security Materials Industries Federation Industries of São Paulo State Brazilian Association of Chemical and Biotech Industries ... Among many others...
- 9. BAF CommandMinistry of Defense Air Force Secretariat for Economy and Finances (SEFA) Offsets 2011 – Sofia, Bulgaria Main civilian players: Defense related industries ... Among many others... Source: ABIMDE http://www.abimde.org.br/?on=associados
- 10. BAF CommandMinistry of Defense Air Force Secretariat for Economy and Finances (SEFA) Offsets 2011 – Sofia, Bulgaria Offset area Defense Threshold FOB 5 million US$, 12 months Minimum obligation 100% commercial contract Timeframe Commercial Contract duration Source of obligation Direct commercial sales or subcontracting (indirect supply) Multipliers Empirical, case-by-case basis Penalties Brazilian administrative legislation Focus Defense and aerospace industry sectors Direct offsets Preferential Indirect offsets Acceptable Eligible activities Transfer of technology, investments, co-production, licensed production, marketing support, training, other forms of countertrade. Offset Strategy of MoD MoD Order 764/MD - Essentials
- 11. BAF CommandMinistry of Defense Air Force Secretariat for Economy and Finances (SEFA) Offsets 2011 – Sofia, Bulgaria Liquidated damages Yes Bank guaranties Usually 5% of the obligation Multipliers 1 to 4 Waiver Sole-source suppliers, government-to-government international agreements (except under competitive environments) Banking 50% of new commercial contracts, 5 years, transferable under the same holding Pre-offsets No, but may be considered in a case-by-case basis Swaps No, but may be considered in a case-by-case basis Industrial Participation Acceptable, but only if joint projects are defined upfront and milestones are established Penalties Credit-increase based settlements may be accepted MoU Mandatory, even if the beneficiary is an AF organization BAF Offset Features
- 12. MoD Army Navy Air Force MoI&T BNDES MoC&T Companies Universities Civilian Organ. Private Sector Commercial Contract funding funding Offset Agreement Lenders Financing Contract funding Defense Offset Agreements General Schema - Brazil FINEP Suppliers Offset Beneficiaries MoF
- 13. BAF CommandMinistry of Defense Air Force Secretariat for Economy and Finances (SEFA) Offsets 2011 – Sofia, Bulgaria BAF’s Acquisition & Offset Process EMAER (BAF’s Gen.Staff) Mil.Org. (Buyers) DCTA (C&T Dep.) IFI (Inst. for Ind. Sup.) SEFA Policy & Strategy Co-ordination Acquisition Process & Execution Technical support Budgetary & Financial support Accounting Internal Control & Auditing
- 14. BAF CommandMinistry of Defense Air Force Secretariat for Economy and Finances (SEFA) Offsets 2011 – Sofia, Bulgaria SEFA in context Air Force Secretariat for Economy and Finances Int’l Affairs Secretariat Federal Budgetary Secretariat General Attourney National Treasury Central Bank Banks ECAs Financial Institutions TCU MPU Gov’t Auditing and Control CGU Foreign Gov’t Entities BAF Mil Org TCU: The Brazilian Court of Audit MPU: The Federal Prosecution Office CGU: The Office of the Comptroller General
- 15. BAF CommandMinistry of Defense Air Force Secretariat for Economy and Finances (SEFA) Offsets 2011 – Sofia, Bulgaria • 5 offset and IP agreements, valued ~US$ 4 billion. (~US$ 500 million credited) • EADS CASA – P-3 &CL-X • Airbus – VC-X • Elbit Systems – F-5BR & AL-X • Eurocopter – H-XBR • 18 agreements under negotiation, valued ~US$ 9 billion. • A-1M – Elbit Systems (T&C agreed) • CL-X2 – Airbus Military • H-XBR CLS – Eurocopter & Turbomeca • F-X2 – waiting final decision from the National Defense Council BAF’s & Offsets* SDDP: Underdepartment of Development and Programs *SDDP examples
- 16. BAF CommandMinistry of Defense Air Force Secretariat for Economy and Finances (SEFA) Offsets 2011 – Sofia, Bulgaria • Industrial cooperation agreement for local production and nationalization of 50 EC-725 helicopters, focused on transfer of technology and local industry development. • First joint acquisition program in Brazilian military history. • 22 ICP projects, managed by SDDP with AF, Navy, Army and MoI&T participation. • Keywords in this project: Industrial co-operation & sustainable benefits Long term relationship Pro-active approach Global strategy Latest Success Case: HX-BR Project MDIC: Ministry of Development, Industry and Trade The first EC-725 shipped to Brazil – Oct 2010 Source: DefesaNet
- 17. BAF CommandMinistry of Defense Air Force Secretariat for Economy and Finances (SEFA) Offsets 2011 – Sofia, Bulgaria BAF Offset Agreements: Controls and Auditing • Few years ago, the controlling was made exclusively by EMAER. • Recently, this control was split between EMAER and SEFA. – EMAER: strategic aspects of offset; – SEFA: fulfillment of the offset credits and its balance. • The Brazilian Court of Audit (TCU) has demonstrated some concerns with a possible negligence on the fulfillment on offset credits. • Additionally to the external control exercised by TCU, SEFA is in charge of all activities related to Auditing inside the BAF realm.
- 18. BAF CommandMinistry of Defense Air Force Secretariat for Economy and Finances (SEFA) Offsets 2011 – Sofia, Bulgaria Brazilian Offset Tendencies • Brazil is moving from decentralized offset management toward industrial participation using high profile programs as drivers of the change. • This implies a different approach to manage offset/IP on Government procurements: – Projects must be discussed at the early stages of program lifecycles, given that effective industrial participation is in fact direct and so set in the beginning for joint development and production to succeed (the CMA issue). – Industrial cooperation demands more institutional support from the offset authority to the local industry, including investments and continuous workload. – Sound business plans are paramount.
- 19. BAF CommandMinistry of Defense Air Force Secretariat for Economy and Finances (SEFA) Offsets 2011 – Sofia, Bulgaria Agenda • Brazilian Military Offset Focuses & Tendencies • Offset Strategy of MoD and BAF • BAF’s Offset Features & Portfolio • SEFA in context • Negotiating Commercial, Financial and Offset's Agreements – a comprehensive approach • Offset Agreements: Controls and Auditing
- 20. BAF CommandMinistry of Defense Air Force Secretariat for Economy and Finances (SEFA) Offsets 2011 – Sofia, Bulgaria Objective • To have a better understanding of the BAF offset strategy, with special attention to the relationships between commercial contracts, offset agreements and buyer’s credit operations. Air Force Secretariat for Economy and Finances (SEFA)
- 21. BAF CommandMinistry of Defense Air Force Secretariat for Economy and Finances (SEFA) Offsets 2011 – Sofia, Bulgaria Offset Strategy of the Brazilian Air Force A comprehensive approach Lt Col Diógenes Lima Neto International Projects Management Tel: +351 939 631 921 E-mail: diogenesln@sefa.aer.mil.br / diogeneslima@hotmail.com Special thanks to Lt Col Eduardo Quesado for his brilliant contribution.