Offset Strategy of the Brazilian Air Force Ministry of Defense

Ministry of Defense
BAF Command
Offset Strategy
of the
Brazilian Air Force
A comprehensive approach
Lt Col Diógenes Lima Neto
M.Sc., MBA
Air Force Secretariat for Economy and Finances (SEFA)
Offsets 2011 – Sofia, Bulgaria
Ministry of Defense
BAF Command
Objective
• A comprehensive 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)
Offsets 2011 – Sofia, Bulgaria
Ministry of Defense
BAF Command
Agenda
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Brazilian Military Offset Focus
Legal Provisions on Defense Offsets
Brazilian Defense Industry’s Synergy
Defense and Related Policies
Main civilian players: industries
Offset Strategy of MoD and BAF
BAF’s Offset Features & Portfolio
Brazilian Offset Trends
Air Force Secretariat for Economy and Finances (SEFA)
Offsets 2011 – Sofia, Bulgaria
Ministry of Defense
BAF Command
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.
Air Force Secretariat for Economy and Finances (SEFA)
Offsets 2011 – Sofia, Bulgaria
Ministry of Defense
BAF Command
Legal Provisions on Defense Offsets
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National Policy Defense
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National Strategy of Defense
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Normative Order nr. 586/MoD, 24 Apr 2006
Policy and Directives on Offsets
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Order nr. 899/MoD, 19 Jul 2005
Strategic Actions towards NDIP
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Decree nr. 6.703, 18 Dec 2008
National Defense Industry Policy (NDIP)
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Decree nr. 5484, 30 Jun 2005
Order nr. 764/MoD, 27 Dec 2002
Joint-workgroup on improving national defense industry capabilities
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Joint-Order nr. 1068, 21 Jul 2008
Air Force Secretariat for Economy and Finances (SEFA)
(MoI&T and MoD)
Offsets 2011 – Sofia, Bulgaria
Ministry of Defense
BAF Command
Brazilian Defense Industry’s Synergy
Political
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President
Legislations
Ministers
Parliamentary Front on National Security
• MoD
• MoI&T
• MoC&T
• Agencies
Government
Industrial
Associations
• Defense and Security Materials
• Aerospace
• Regional
Air Force Secretariat for Economy and Finances (SEFA)
Offsets 2011 – Sofia, Bulgaria
Defense and Related Policies
National Policy Defense
National Strategy of Defense
• Navy Command
• Army Command
• Air Force Command
• Brazilian Agency for Industrial Dev. - ABDI
• National Development Bank – BNDES
• Defense Industrial Complex
• Research and Projects Financing – FINEP
• Public and Private Universities
Ministry of Defense
BAF Command
Main civilian players:
Defense Industry Associations
Federation Industries of São Paulo State
Brazilian Association of Defense and Security Materials Industries
Brazilian Aerospace Industries Association
Brazilian Association of Chemical and Biotech Industries
... Among many others...
Air Force Secretariat for Economy and Finances (SEFA)
Offsets 2011 – Sofia, Bulgaria
Ministry of Defense
BAF Command
Main civilian players:
Defense related industries
Source: ABIMDE
http://www.abimde.org.br/?on=associados
... Among many others...
Air Force Secretariat for Economy and Finances (SEFA)
Offsets 2011 – Sofia, Bulgaria
Ministry of Defense
BAF Command
Offset Strategy of MoD
MoD Order 764/MD - Essentials
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.
Air Force Secretariat for Economy and Finances (SEFA)
Offsets 2011 – Sofia, Bulgaria
Defense Offset Agreements
General Schema - Brazil
MoF
MoD
MoC&T
MoI&T
FINEP
Army
BNDES
Navy
Air Force
funding
funding
Financing
Contract
Commercial
Contract
Offset
Agreement
Private
Sector
Companies
Universities
Civilian Organ.
Suppliers
Lenders
funding
Offset
Beneficiaries
Ministry of Defense
BAF Command
BAF Offset Features
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
Air Force Secretariat for Economy and Finances (SEFA)
Offsets 2011 – Sofia, Bulgaria
Ministry of Defense
BAF Command
BAF’s Acquisition & Offset Process
EMAER
Mil.Org.
DCTA
IFI
(BAF’s Gen.Staff)
(Buyers)
(C&T Dep.)
(Inst. for
Ind. Sup.)
SEFA
Policy & Strategy
Co-ordination
Acquisition Process &
Execution
Technical support
Budgetary & Financial
support
Accounting
Internal Control & Auditing
Air Force Secretariat for Economy and Finances (SEFA)
Offsets 2011 – Sofia, Bulgaria
Ministry of Defense
BAF Command
SEFA in context
Financial Institutions
Air Force Secretariat for Economy and Finances
General Attourney
Banks
National Treasury
ECAs
Central Bank
Foreign Gov’t Entities
Gov’t Auditing and Control
TCU
Int’l Affairs
Secretariat
MPU
CGU
TCU: The Brazilian Court of Audit
MPU: The Federal Prosecution Office
Air Force Secretariat for Economy and
CGU: The Office of the Comptroller General
BAF Mil Org
Finances (SEFA)
Federal Budgetary
Secretariat
Offsets 2011 – Sofia, Bulgaria
Ministry of Defense
BAF Command
BAF ‘s Offsets (*)
• 5 offset and IP agreements, valued ~US$ 4 billion.
(~US$ 500 million credited)
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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.
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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
SDDP: Underdepartment of Development and Programs
Air Force Secretariat for Economy and Finances (SEFA)
*SDDP examples
Offsets 2011 – Sofia, Bulgaria
Ministry of Defense
BAF Command
Latest Success Case: HX-BR Project
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Industrial cooperation agreement for local production and nationalization of
50 EC-725 helicopters, focused on transfer of technology and local industry
development.
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First joint acquisition program in Brazilian military history.
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22 ICP projects, managed by SDDP with AF, Navy, Army and MoI&T
participation.
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Keywords in this project:
 Industrial co-operation & sustainable benefits
 Long term relationship
 Pro-active approach
 Global strategy
MDIC: Ministry of Development, Industry and Trade
Air Force Secretariat for Economy and Finances (SEFA)
The first EC-725 shipped to Brazil – Oct 2010
Source: DefesaNet
Offsets 2011 – Sofia, Bulgaria
Ministry of Defense
BAF Command
BAF Offset Agreements: Controls and Auditing
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Few years ago, the controlling was made exclusively by EMAER.
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Recently, this control was split between EMAER and SEFA.
– EMAER: strategic aspects of offset;
– SEFA: fulfillment of the offset credits and its balance.
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The Brazilian Court of Audit (TCU) has demonstrated some concerns
with a possible negligence on the fulfillment on offset credits.
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Additionally to the external control exercised by TCU, SEFA is in
charge of all activities related to Auditing inside the BAF realm.
Air Force Secretariat for Economy and Finances (SEFA)
Offsets 2011 – Sofia, Bulgaria
Ministry of Defense
BAF Command
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.
Air Force Secretariat for Economy and Finances (SEFA)
Offsets 2011 – Sofia, Bulgaria
Ministry of Defense
BAF Command
Agenda
•
•
•
•
•
•
•
•
Brazilian Military Offset Focus
Legal Provisions on Defense Offsets
Brazilian Defense Industry’s Synergy
Defense and Related Policies
Main civilian players: industries
Offset Strategy of MoD and BAF
BAF’s Offset Features & Portfolio
Brazilian Offset Trends
Air Force Secretariat for Economy and Finances (SEFA)
Offsets 2011 – Sofia, Bulgaria
Ministry of Defense
BAF Command
Objective
• A comprehensive 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)
Offsets 2011 – Sofia, Bulgaria
Ministry of Defense
BAF Command
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: [email protected] / [email protected]
Special thanks to Lt Col Eduardo Quesado for his brilliant contribution.
Air Force Secretariat for Economy and Finances (SEFA)
Offsets 2011 – Sofia, Bulgaria
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