The Brazilian Energy Sector by David Panico, Managing Director, Investment Banking, Citi. Presentation featured at the 2nd International Conference: Brazil: A pathway into the future from the Emerging Markets Institute at Cornell University's Samuel Curtis Johnson Graduate School of Management and Better Brazil

1. September 2012
The Brazilian Energy Sector

2. Table of Contents
1. Citi Brazil 1
2. Introduction: The Brazilian Energy Matrix 3
3. Power Sector Overview: Perspectives and Challenges 5
4. Oil & Gas Sector Overview: Perspectives and Challenges 12

3. 1. Citi Brazil

4. : The Largest Global Bank with a Commercial Platform in Brazil
Present in Brazil for 97 years, with a unique breath of services and long-lasting commercial relationships.
Shareholders’ Equity in Brazil Key Citi Brazil Highlights
(US$ bn)
$4.0
Enhanced Investment Banking Capabilities
$1.8
$1.5
$1.3
$0.8 Strong Financial Products Expertise
$0.7 $0.6
$0.4 $0.3
CS JPM BNP MS BAML DB BARC GS
Brazil + Global Distribution Network
Assets in Brazil
(US$ bn)
$33.6
Relationship with Corporate Clients
$18.1
$15.2 $14.6 Strong brand among Brazilian customers
$11.4
$3.8 $3.5
$2.1 $1.3
Seasoned Personnel
DB CS JPM BNP BARC BAML MS GS
Source: Brazilian Central Bank as of December 31, 2011.
1

5. is a Leading Advisor and Underwriter in Brazil
Citi continues to be a leading underwriter on several landmark equity transactions throughout Brazil, with a
solid position amongst international banks.
Brazil Equity Brazil M&A
(2010-2012 YTD) (2010-2012 YTD)
Rank Bookrunner Volume ($bn) Share (%) Rank Bookrunner Volume ($bn) Share (%)
1 BofA Merril Lynch $6.2 10.7% 1 BofA Merril Lynch $26.9 58.8%
2 $6.0 10.3% 2 Credit Suisse $24.2 52.9%
3 Morgan Stanley $4.7 8.2% 3 Barclays $17.2 37.7%
4 Credit Suisse $4.7 8.2% 4 $6.9 15.1%
5 JP Morgan $2.5 4.2% 5 JP Morgan $5.6 12.2%
6 Goldman Sachs $1.7 3.0% 6 UBS $5.0 11.0%
7 Deutsche Bank $0.2 0.5% 7 Societe Generale $4.8 10.5%
Advisor on the Advisor on the sale
Tender Offer for Advisor on the
Advisor to HRT of the remaining
Follow-On
Follow-On IPO
IPO ETF
ETF IPO
IPO the remaining acquisition of a
Block Trade Advisor to Vale in Participações in 49.9% stake to
Joint
Joint Joint
Joint Joint
Joint Joint
Joint Block Trade 67% stake in 60% stake in
Joint Bookrunner the sale of its oil & the sale of E&P
Bookrunner
Bookrunner Bookrunner
Bookrunner Bookrunner
Bookrunner Bookrunner
Bookrunner Joint Bookrunner
gas E&P assets in assets in
US$1.7 bn US$530 mm Brazil Namibia
US$1.7 bn US$530 mm US$5.4 bn US$6.8 bn US$1.8 bn
Ongoing
Ongoing Ongoing
Ongoing Ongoing
Ongoing 2012
2012 2011 Ongoing Ongoing
2011 Ongoing Ongoing April 2012
Advisor on the Advisor to the Advisor on the Advisor on the Advisor on the sale
Follow-On
Follow-On acquisition of a acquisition of
Follow-On Follow-On IPO Consortium on primary sale of a of Shopping Jardim
Follow-On Follow-On Joint
Joint IPO Follow-On 5.6% stake in
Joint Joint Joint Follow-On the privatization 30% stake in Galp Sul and landbanks
Joint Joint Bookrunner
Bookrunner Joint
Bookrunner Bookrunner Bookrunner Joint Bookrunner
Joint Bookrunner of Brasília Airport to
Bookrunner Bookrunner Bookrunner
US$70 bn
US$70 bn US$4.9 bn
US$4.9 bn US$686 mm
US$686 mm US$1.5 bn
US$1.5 bn US$232 mm US$2.0 bn US$2.6 bn US$2.3 bn US$272 mm
US$232 mm US$4.8 bn
2010
2010 2010
2010 2010
2010 2010
2010 2009 March 2012 February 2012 January 2012 November 2011
2009 November 2011
Advisor on the Advisor Advisor on the
acquisition of a Advisor on the Advisor on the
on its sale to acquisition of
50.5% stake in sale of PU unit acquisition of
Follow-On
Follow-On Follow-On
Follow-On Follow-On
Follow-On Follow-On
Follow-On Follow-On
Follow-On assets in LatAm
to
Joint Bookrunner
Joint Bookrunner Joint Bookrunner
Joint Bookrunner Joint Bookrunner
Joint Bookrunner Joint Bookrunner
Joint Bookrunner Joint Bookrunner
Joint Bookrunner from
US$356 mm US$224 mm US$350 mm US$376 mm US$890 mm US$2.6 bn US$327 mm US$340 mm US$330 mm US$4.5bn
US$356 mm US$224 mm US$350 mm US$376 mm US$890 mm
2009 2009 2009 2009 2009 August 2011 August 2011 July 2011 April 2011 January 2011
2009 2009 2009 2009 2009
Source: Bloomberg as of June 1st 2012.
Note: League tables include only international banks.
2

6. 2. Introduction: The Brazilian Energy Matrix

7. Brazil: Solid Macroeconomics
Russia
Largest Economies by GDP, 2011 Brazilian GDP
(Nominal GDP in US$ tn) (US$ bn, % p.a.)
USA 15.1 6.1% 5.2% 7.6%
3.9% 4.5% 4.3% 4.2%
2.7% 3.0%
China 7.3 $3,203
(0.3%) $2,815 $3,009
$2,474 $2,567
$2,142
$1,653 $1,622
$1,366
$1,089
Japan 5.9
2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E
Germany 3.6
Nominal GDP (US$bn) GDP (Real Change p.a., in %)
France 2.8
Interest Rates & Inflation
Brazil 2.5 (Avg, %)
15.3% United China Japan Germany France Brazil United Italy
UK 2.4 States Kingdom
12.0% 12.4% 11.7%
10.1% 9.8%
7.5%
Italy 2.2 6.6%
5.7% 5.0%
4.2% 4.9% 4.9%
3.6%
Russia 1.9
2006 2007 2008 2009 2010 2011 2012E
Canada 1.7 Inflation (IPCA) Interest rate (Selic, year average)
Source: Brazilian Central Bank and IMF.
3

8. The Brazilian Energy Matrix: Renewable as Nowhere Else
2010
Nuclear
Mineral Coal 1% Hydro
5% 14%
Natural Gas
10%
Vegetable Coal &
Wood
Over 45% of all energy
10% consumed in Brazil comes from
Renewables:
45%
renewable sources, versus an
average of 13% in developed
Sugar Cane countries
18%
Petroleum Based
39%
Other Renew ables
3%
2020
Nuclear
Mineral Coal
6%
1% Hydro Renewable sources account for
13%
Natural Gas
over 80% of electricity
Vegetable Coal &
14%
Wood
generation, while global average
8% Renewables: is under 20%
47%
Sugar Cane
22%
Petroleum Based
32%
Other Renew ables
4%
Source: Brazilian Ministry of Mines and Energy.
4

9. 3. Power Sector Overview: Perspectives and Challenges

10. Significant Potential for Electricity Demand…
Electrical Consumption p/ Capita vs. GDP p/ Capita
(KWh, US)
18,000
Effect of electrically
intensive Canada
16,000 (Aluminum) Canada
14,000
USA
USA
12,000
KWh/hab/year
10,000 Brazil’s per capita electricity
consumption is expected to
Japan
8,000
reach 3.5MWh by 2020 from
France
2.4MWh today
Germany
Russia Spain
6,000 UK
Portugal
Greece
Italy
Chile
4,000
Brazil 2020
China
Argentina
2,000
India Brazil 2010
0
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000
US$/hab/year
Source: IEA 2009: Key World Energy Statistics.
(1) GDP per Capita in US$ covnerted through Purchase Power Parity as of 2000. Data pertains to the year 2007 for all countries except for Brazil.
5

11. …Fueled by Brazil’s Regional Development
Forecasted Energy Demand by Region
(Avg. GW)
CAGR: 4.6% CAGR
74.3 Power demand is expected to
71.3
68.4 +9.7%
grow 4.6% p.a. between 2011
6.5
65.0 6.2 and 2016
61.5 5.9
59.2 5.1 10.7 +5.0%
4.3 10.2
4.1 9.7
9.2
8.8
8.4 11.8 +3.8%
11.3
10.9
10.5
10.1
9.8 While the Southeast and
Midwest account for over 60%
of consumption, it is the
developing regions (N and NE)
40.2 41.9 43.6 45.3 +4.2% that grow at a faster pace
36.9 38.3
2011 2012 2013 2014 2015 2016
Yearly capacity expansions of
Southeast / Mid West South Northeast North 6,2 GW will be required to
supply to this additional demand
Source: EPE.
6

12. Expected Growth in Installed Capacity…
Supply & Demand Balance
(Avg. GW)
Government sponsored
81
oversupply to maintain
competitive prices
77.6 3.4
75.4 2.2
3.3
Contracting energy in reserve
2.2
4.2 74.3
auctions to provide further
71.4
system stability
4.8
1.7
71.3
4.6 68.5
63.7
65.0
Oversupply assumes contracted
1.2
0.9
projects coming online within
59.5 expected timeframe
0.2 61.6
0.1
59.2
2011 2012 2013 2014 2015 2016 Complexity of large projects
Spare Capacity Reserve Energy Supply Demand
being developed could result in
delays
Source: Company Presentations and Wall Street Research.
7

13. …Focused on Alternative Renewables
Breakdown of Capacity By Source Installed
(% of total MW) Capacity /
Potential Key Themes
2010
(GW)
▲Competitive implementation and operating
Nuclear costs
2%
79.1 / ▲Clean energy
Hydro Thermal 260(1) ▼Environmental / social licensing
76% 14% Hydro ▼Uncontrollable source (climate dependent)
▼Difficulties to develop unexplored potential
Renew ables
8% ▲ Not dependent on climate
▼ Environmental issues
22.7 ▼ Natural gas supply restrictions
Thermal ▼ Higher cost of certain sources (diesel, heavy
fuel oil)
2020
▲ Clean energy
▲ Large unexplored potential
Nuclear SHP: 4.1 /
2% 18 ▲ Increased competitiveness due to local
supply of equipment (particularly in wind)
Hydro Thermal Wind: 1.7 /
67% 15% 143 ▲ Government Subsidies
Renewables ▼ Dependent on climate (SHPs – Rainfall /
Biomass: 9.8 /
Wind – Seasonality of generation)
13.5(2)
Renew ables ▼ Current energy price levels are not
16% competitive for some sources
Sources: ANEEL, CRESESB/CEPEL, CENBIO, CPFL.
(1) Estimated totality of hydropower potential, including small hydropower plants (SHPs)
8 (2) Estimated potential of generation from sugarcane biomass

14. Alternative Energy Has Competitive Prices…
Auctions have been adding significant capacity to the Brazil’s generation supply base, most notably in the
thermal and renewable sectors.
Auctions(1) Price Evolution
(R$/ MWh)
Assured Energy per Source (avg. GW)
1.3% 0.1%
$150 R$145.66
(11%)
2009 0.8 GW
98.6%
$120
2% (22%)
12% R$101.34
$90
2010 2.6 GW 51%
51%
35%
$60
11% 9%
9%
$30
2011 2.3 GW
40%
40% 40%
$0
2009 2010 2011
Hydro Small Hydro Biomass
Wind Gas-Fired
Source: CCE, Citi estimates and Wall Street Research.
(1) Considers new energy (LEN), reserve energy (LER) and alternative energy (LFA) auctions
(2) Excluding Belo Monte Plant
9

15. …Which Have Been a Governmental Concern
Increasing Government intervention is changing he structure of the power sector, and will demand strong
efforts towards efficiency gains to maintain attractive levels of return.
Changes Impacts
A Tariff Reviews
• Regulatory WACC reduction from ▼ Pressure for efficiency gains
Distribution 9.95% to 7.15%
▲ M&A potential - Synergies
• X-Factor
B Concession Renewal
• No capital remuneration in tariffs (cost- ▼ Reduction of ~20% in regulated
based model) power prices(1)
Generation • Segment becomes regulated upon ▼ Increase in consumption could
renewal (optional) surpass projected demand
• Reduction of regulatory charges ▼ Reduced competitiveness of free
market
▼ Pressure for efficiency gains
• No reimbursements for assets built ▼ Lower margins / dividends
Transmission before 1999
▼ Single digit returns on new projects
• Cost-based model
▼ Lower cash flow for companies
which choose to renew, hindering
their ability to invest in new projects
(1) Estimated joint impact of regulatory changes and generation / transmission costs
10

16. Competitive Landscape
Generation Distribution Transmission
119.989 MW 68 mm customers R$12.7 bn Annual RAP
(1)
33% 13%
(1) 46%
6% 12%
9% 18%
6%
9%
5%
7% 17%
4%
6%
4%
6% 5%
2%
5%
2% 4%
5%
2%
5%
1% (1) 2%
4%
1%
4%
2%
1% 3%
1% 3%
2%
1% 2%
Others 30% Others 6% Others 4% International
Players
78% State Owned 33% State Owned 68% State Owned
22% Private 67% Private 32% Private
Source: Aneel, EPE, Wall Street Research.
(1) Includes Chesf, Furnas, Eletronorte, Eletronuclear, Itaipu & Amazonas Energia
11

17. 4. Oil & Gas Sector Overview: Perspectives and Challenges

18. Brazil to Become a Top O&G Player
Pre-Salt: a Structural Change
Worldwide Oil and Gas Reserves (bn boe)
Russia 335
Iran 312
In the past 5 years, over 50% of oil
Saudi Arabia 311
discoveries were in deep waters.
Qatar 176
Brazil represents 63% of such discoveries
Brazil (Post Tupi) 145
UAE 136
Iraq 134
Kw ait 112
USA 69
Nigeria 68 Forecasts suggest that, with the
Libya 53 development of recent finds, Brazil will be
Kazakhstan 51 the non-OPEC country with greatest
Turmenistan 48 ~9.7x
increase in production by 2030
Canada 44 Adding pre-salt discoveries
Algeria 39
China 29
Indonesia 23
Australia 22
Malaysia 20
Norw ay 19 At current production rates, proven reserves
Egypt 17 would last for around 19 years
Brazil 15
Azerbaijan 15
Source: ODS-Petrodata, Riglogix, Wall Street Research, BP Statistical Review of World Energy (2010) and Petrobras’s filings.
12

19. O&G Production Should Outpace Global Producers
Brazil Oil Production (MBbl/d)
With increase in production, Brazil has
become self-sufficient and is now a net
6.1
exporter of oil
5.9
5.5
6 %
2.
R :1 4.9
C AG
4.4
Additional production will come from deep
3.8 exploration, in which Petrobras has an
3.5
acknowledged expertise, being the leading
CAGR: 5.0%
offshore operator measured by production
2.8
2.5
and number of offshore facilities
2.1 2.1
2.0
1.8
Brazil is expected to produce 6.1 MBbl/dof
by 2020, of which 4.2 MBbl/dof will come
from Petrobras
2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E
Source: Wall Street Research.
13

20. Brazil: Oil and Natural Gas Reserves are concentrated in RJ
AM CE
RN
AL
SE
BA
Natural Gas Reserves Oil Reserves
ES
59.2%
SP 82.8%
Total:
7.4% RJ Total: 0.4%
852,147 m m m ³ 0.6%
PR 28,467 m m boe 0.3%
6.2% 0.7%
11.1% SC
9.5%
8.2%
10.3%
AM NE ES RJ SP S
Source: ANP.
14

21. Brazil: On Track to Become a Major Consumer of Oil
10 Largest Consumers of Oil in 2011
(Bubble sizes represent amount of Oil consumed in 2011)
9%
Saudi Arabia The expansion of the middle
China
China class, increased credit
7% availability, and record auto
Annual growth in demand for Oil 2005–2011
sales in recent years drive rapid
increases in fuel demand
India
India
5%
Brazil
3% Gasoline and diesel demand
Russia have grown at an average pace
Canada
of 15.9% and 6.3%, respectively,
1% in the last 3 years
South Korea
(2)% 0% 2% 4% 6% 8% 10% 12% 14% 16%
(1)% Annual GDP growth 2005–2011
USA
Germany Between 2011-2020, demand for
(3)% Bubble sizes represent ammount of Oil consumed in 2011
oil subproducts are expected to
grow 4.5% p.a.
Japan
(5)%
Source: BP Statistical Review and World Bank.
15

22. Petrobras Dominates the Brazilian O&G Market
E&P Market Share
(% production, boe/d) 1,736,454
46,960
36,870
92%
8% 14,369 14,131 13,051
7,616 7,954 5,078 4,794
Refinement
(% of installed capacity, m³ p/day)
326.4
98%
2.7 2.2
1.1
0.3
2%
Biodiesel
(% of installed capacity, m³)
556,679 518,400
450,000 434,462
378,000
343,800
296,640 286,920
7%
237,600 216,000
93%
Olfar
Source: Wall Street Research, IBP and ANP.
16

23. Major Investments In The Sector
Investment breakdown until 2016
(%)
US$236.5 bn
Others
7%
Bio-Fuels
1%
Gas & Energy
6% Between 2012 – 2016 Petrobras will
invest US$236.5 bn in all areas of
production and refinement of O&G; this
presents an outstanding opportunity for all
sectors related to the O&G industry.
E&P
Dow nstream & Logistics 56%
30%
Source: Petrobras.
17

24. E&P: Complex Offshore Exploration Brings Challenges
Investment breakdown until 2016
(%)
The exploration of offshore reserves so far
from the shore poses many challenges,
US$131.6 bn namely in logistics, which will demand
heavy investments
Exploration
19%
Local content requirements imposed by the
government could cause delays and cost
overruns
Infrastructure and
Production
Support
Development
69%
12% Focus on pre-salt discoveries resulted in
lack of maintenance investments in existing
fields, which led to production drops
Royalties imbroglio has hindered new
bidding rounds by ANP
Source: Petrobras.
18

25. Downstream: Much Needed Modernization to Take Place
Investment breakdown until 2016
(%)
Current installed capacity is outdated (last
refinery built in the 80’s)
US$71.6 bn
Refineries have low complexity indexes and
Improvement cannot efficiently process heavy crudes
17%
Quality & Fast growing demand, coupled with lack of
Conversion
21%
investments in additional supply, has made
Brazil become an importer
Refining Capacity
Expansion
44%
Logistics for Oil Government intervention in pricing policy
8% has negative impacts on returns and cash
Others
flows.
Petrobras’ investment plan foresees
additional capacity of 1.4 Mbbl/d, reaching
3.4 Mbbl/d by 2020.
Source: Petrobras.
19

26. Gas & Energy: Logistics is the Bottleneck
Investment breakdown until 2016
(%)
Despite substantial natural gas reserves,
production has grown at a slow pace due to
US$13.5 bn the lack of investments in logistics
Expansion -
Natural gas accounted for only 9% of
Regassification energy consumption in 2011, versus 51% in
14%
Argentina
Expansion - Gas
Chemical
42%
Expansion - Petrobras controls most of the country’s
Natural Gas
Logistics
reserves, is responsible for the majority of
17% production and imports, controls the
national transmission network, and holds
stakes in 2/3 of state-owned natural gas
Expansion - companies
Others Electric Energy
15% Generation
12%
The company’s investment plans foresees
relevant expansions, reaching 3.4 bcf/d of
production by 2020
Source: Petrobras.
20

27. Biofuels: Promise for the Future
Investment breakdown until 2016
(%)
Brazil’s leading role as a producer of
ethanol from sugarcane places it as the 2nd
US$2.5 bn largest producer of biofuels behind the US
Corporate
The country also stands out in biodiesel and
0.4% is expected to become the largest producer
Agricultural Supply in 2012. It is currently the largest consumer
16% in the world.
Biodiesel
11% The country benefits from favorable climate,
Ethanol
73%
availability of arable land, and efficient
technology for crop cultivation
Mandatory biofuel blends in gasoline and
diesel are important drivers of expected
growth in upcoming years
Source: Petrobras.
21

28. Extensive Government Presence in O&G
The Brazilian Government plays a significant role in the local O&G industry, both in terms of legislation and
through the control of Petrobras.
Local Content Requirement Other Policies & Legislation
Local Content Requirement laws stipulate that a minimum percentage A Fixed Fuel Prices
of equipment and services contracted by an operator must be
supplied by local companies
• Government policy regulates downstream
prices
Local Content • Despite recent readjustments (after 6 years),
(%) 62% there is still a 21% deficit to import prices
+7 p.p.
E&P
55% B Pre-Salt Operation
• Proposed legislation foresees product sharing
2004 2011
contracts, by which Petrobras would hold a
minimum of 30% of any new pre-salt
+10 p.p. 92%
reservoirs
Supply
• Petrobras would also be the sole operator of
82%
PSAs
2004 2011
C Transfer of Rights
+20 p.p.
90% • Agreement made with Petrobras by which the
70%
Government assigned the right to explore pre-
Energy
Gas &
salt areas subject to a maximum production of
5,000 Mboe for US$ 42.5 bn.
• Subsequent price and volume revision could
2004 2011
trigger value adjustments
Source: ANP and Wall Street Research
22