Companies intending to invest in the oil, gas and electric energy sector may now open foreign currencies accounts in Brazil.

The National Monetary Council´s Resolution 2.644 permits, in a restrictive manner, the opening of bank accounts by national and foreign companies in any currency. Basically, there are two requirements. Firstly, only resources obtained through the selling of energy products and rendering of energy services may be deposited in such accounts, after the costs of activities, taxes and other expenses are deducted. Secondly, withdrawals for remittance abroad are only allowed for:

* paying commitments registered with the Central Bank; or

* other obligations relative to energy projects.

The measure aims at providing a hedge mechanism for foreign investors against the risks of exchange rate fluctuations and, as a consequence, giving Brazil further competitiveness in attracting investments in the energy sector.
Despite the reduction of the privatisation process in 1999 foreigners have been investing more in Brazil than forecasters had predicted.

After the entry of $4 billion of investments into Brazil in July, economists have recalculated their predictions. Foreign companies are now expected to invest between $23 billion and $25 billion by the end of the year. Although that will be a bit short of the $26.1 billion invested in 1998, it still is much more than the expected investment for 1999, which was forecasted to be between $15 billion and $18 billion.

Among the reasons for the unexpected increase is the fact that Brazilian companies prices are now cheaper to foreign investors, due to the strong devaluation which occurred with the real during the beginning of the year. Many state-run companies are being turned over to private owners and consortia, many of which are dominated by foreigners. The privatization process has accounted for about 40% of the foreign capital for direct investments.
The Central Bank has reduced from 0.5% to zero the rate of the Tax on Financial Operations (IOF) for investments concerning applications of foreign resources on fixed income funds and on operations of floating exchange rate. With this measure, the Brazilian government intents attract foreign investments and also to control the exchange rate of American dollars in Brazil, with has increased in the last few weeks.
After 45 years of state monopoly, the exploration and production of petroleum in Brazil can finally be made by private companies. The companies were awarded their concessions by auction this summer, and Petrobrás, the state-owned enterprise that previously held the only petroleum concession, now has 11 competitors.

The areas of exploration offered up were divided into 27 blocks, most of them showing traces of the presence of oil. Of the 38 companies participating in the bid, the primary winners were the Italian company Agip and Petrobrás. Of the 27 areas auctioned, 12 were sold; five to Petrobrás, four to Agip.

Lack of interest in some of the areas had been expected. The purchasers bid for the less risky areas, where research had already shown evidence of petroleum.

The government intends to increase tax benefits so as to better equate Brazilian and foreign suppliers of materials and services, intending to reduce from 7% to 3% the difference in tax paid between national and foreign enterprises.

With the new private capital investment, the petroleum sector in Brazil will undoubtedly expand. The government expects investment close to $70 billion in the next 10 years. The areas sold have great potential and the 15 areas that have not yet been sold are due for sale at the beginning of 2000.