#1WÄRTSILÄ CORPORATION BRAZIL TAKES OFF © Wärtsilä Investor meeting Rio de Janeiro November 2012 (Handelsbanken) WÄRTSILÄ#2CORPORATION Benchmarking Brazilian economy against other large economies Brazil is uniquely positioned amongst world's top economies: Indeed, the size of its territory, population and GDP put Brazil in a prominent position among the largest economies in the world. Area 3m km² + Russia Bangladesh India Nigeria Australia Pakistan 100m inhabitants + USA Indonesia Key indicators: China Canada Japan Germany, Spain, France, Italy, UK GDP US$ 500bn + Area: 8.5m km² Coastline: 7,491km Population: 198.7m GDP: US$2,29 trillion (2011) Source: CIA WÄRTSILÄ#3RE Wärtsilä Brasil Ltda founded in 1990 Total 600+ employees today Where is Wärtsilä in Brazil WARTSILA Existing location to support the local PP installations) and facilitate training of personnel in Wärtsilä own Sea & Land Academy © Wärtsilä More than 25 power plants with installed power in excess of 2,5 GW New workshop to support the PP installations and local shipping market New Office and Workshops to support the Offshore (O&G) business Existing workshop and offices (RJ) Significant Offshore installed base WÄRTSILÄ#4CORPORATION Wärtsilä Brasil snapshot Current strengths Recent key developments Locations Current capabilities • Rio de Janeiro Workshop type B ARPP & Services mgmt; Fin. & Adm. • Manaus • Workshop type C . Service sales, Contract management, • PP and SP new project sales, PP project execution • Broad scope of services • • O&M + maintenance agreements Engines, propulsion, automation and reconditioning services • Training services Ship design (sales and local contact) - no full design capabilities Employees • 547 employees (1,2 M man-hours worked in 2011 serving our customers Recognized brand name Large installed base (over 3 GW) • Local presence / proven track record in Brasil • Largest after Sales organization and footprint Only company with a 2-stroke license in Brazil • Recognized EPC and project management capabilities • Good reputation as an employer At present, Wärtsilä has a broader footprint and a larger after sales force than any competitor. Yet, to meet our ambitious targets and to fulfill our customers' needs, our footprint needs to expand further. In practice, this requires moving to new facilities in Rio, establishing a service outlet in the NE and products to become increasingly localized. © Wärtsilä WÄRTSILÄ#5© Wärtsilä 2016 2015 2014 2013 CORPORATION 2012 2011 Boom in the economy WORLD ECONOMIC FORUM RIO 2011 STHEISH BUTARY Rio + 20 The Economist Brazil takes off Wallpaper* DESIGN AWARDS 2011 RIO HEATHROW THE RIO THING FA WORLD CUP Confederations Cup Brasil Energy FIFA WORLD CUP Brasil RIO 450th Anniversary Rio2016 1.234 2003 4.910 2020 Bold Goal Finava 058 209 TUCIONETnTals For A Prodasotinctive From loday's 2MP pd To 1910 MM Edle-938 chron HOUSTON CHRONICLE guardian.co.uk Reviving a reputation RIO DE JANEIRO: A MONOCLE CITY SURVEY fDi SPECIAL REPORT Manufacturing makes a comeback Oligong RIO WÄRTSILÄ#6CORPORATION ☐ ■ ☐ Summary Macroeconomics Brazil The global financial crisis affects the Brazilian Banking System mainly by lack of USD-Liquidity, but not in terms of weak assets in the portfolio, credit losses, trading losses etc. This was prevented to a large extend by the restrictive legal framework which doesn't allow Brazilian banks to trade CDS. Actually the stable and very profitable banking system will be a strong pillar for the Brazilian economy development. After a soft landing during the world financial crisis in 2008, Brazilian economy is now stagnant growth, however showing mixed signals. Having flirted with recession the last year, it seems the economy is finally reacting and posting a timid growth. The government is actively stimulating consumption by tax reductions, injecting capital into the economy for investments and by continuously reducing interest rates. GDP rose second Q2-2012 by 0.4% slightly above first quarter at 0.1% mainly due to strong agricultural expansion. Annual GDP growth has been reduce again to 1.57%. Anyway, Brazil has important players in the commodity segments with a strong domestic and international demand on the long-term and therefore might get back to higher growth rates. Besides, high international reserves give much more fiscal headroom to the current administration to take fiscal initiatives and stimulate/subsidize investments and employment programs. Unemployment remains at record low level around 5.3%. Labor market is considered to be “hot” and work forces at all levels; both blue and whiter collar, are in high demand. There is currently a lack of skilled labor at all levels. ◉ Year-end projections: O Annual GDP growth has been reduce again to 1.57%. © Wärtsilä O Inflation year-end forecast at 5.42% Trade surplus in the external accounts at USD 18 billion; Foreign direct investment at USD 58.8 billion and current account deficit of USD 56.1 billion. The SELIC interest rate is expected to end 2012 at 7.50% p.a. and the foreign exchange rate BRL 2.00 per USD The net public sector debt is expected to end 2012 at 35.25% of GDP. For 2013 the main estimates are; GDP growth at 4.0% and IPCA inflation at 5.44%, current account deficit at USD 68.16 billion, foreign direct investments at USD 60 billion and trade surplus at USD 14.57 billion. WÄRTSILÄ#7CORPORATION Economic growth is expected to pick up from 2013 onwards Real GDP and annual growth % BRL bn 2000 1800 1 600 1400 2000-2011 CAGR: 3.5% % 2012-2017 CAGR: 4.1% 9 8 7 10 6 7 W 1200 1000 800 600 400 200 5 4 3 2 1 0 0 -1 2000 2001 2002 2003 2004 2005 2006 2007 2008 Real GDP IMF GDP estimate 2009 2010 2011 2012e 2013e 2014e 2015e 2016e 2017e Actualy/y change (%) IMF y/y change est. (%) The Brazilian government is actively stimulating consumption by tax reductions, injecting capital through investments and by continuously reducing interest rates. Inflation at 5.3% is somewhat over the Central Bank's target of 4.5%. There is lack of skilled labour at all levels while unemployment remains record low at around 5.3% (being even lower in the offshore hub of Rio de Janeiro). December 2012 Source: IMF, DnB Nor * SELIC down from 12.5% to 7.5% during the past year VANTSILÄ#8CORPORATION At this point the economy rests on quite strong fundamentals... Inflation has been at historically low levels ... 12-month IPCA inflation and inflation targets (%) 17 15 IPCA Inflation 13 (12.5) 11 T 5 3 Center of the target range . enabling the central bank to lower the steering rate Central bank steering rate % 30 * Since January 2009, the central bank has cut SELIC by 500 bp to 8.75% to stimulate the economy* 25 20 20 15 Upper limit 10 5 Lower limit 0 1 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09e Dec-10e Dec-11e 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009F 2010F 2011F → Selic interest rate (%) Unemployment continues to decline... Unemployment rate (%) 11.0 10.5 10.0 9.5 Seasonally adjusted 9.0 8.5 8.0 7.5 7.0 Original 6.5 6.0 Mar-06 Nov-06 Jul-07 Mar-08 Nov-08 Jul-09 Mar-10e Dec-10e while industrial confidence is approaching pre-crisis levels Industrial confidence index 132 Current Status Index 122 112 Expectations Index 113.5 412.2 111.0 102 92 Industrial Confidence Index 82 72 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Additionally, the central bank has injected R$99.8 billion of liquidity into the banking system by cutting reserve requirements. Source: Credit Suisse research and forecasts Dec-2009; the shown forecasts are in line with other investment banks © Wärtsilä WÄRTSILÄ#9CORPORATION 1. A reversal in global economic recovery 2. The expansionary monetary and fiscal policies however, some risks will always prevail A new recession cycle in central economies would likely be accompanied by higher risk aversion to risk and lower investor appetite for emerging market investments. For the past decade, government spending has exceeded GDP growth*. In the long- term, government spending should converge to GDP growth or Brazil could become too indebted to foreign investors. Credit from public banks, namely National Development Bank BNDES, has grown faster than private lending. Also private sector banks must carry their fare share. Large monetary stimulus from the Central Bank was necessary to avert a financial crunch in 4Q2008. Now that the economy is showing signs of a solid base, the CB has started to withdraw surplus liquidity from the market through repurchase operations. 3. Further strenthening of the Real (BRL)** An "excessively" strong Brazilian Real (BRL) would favor imports over exports and thus reduce USDBRL 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 future GDP growth. Jan-00 -00-inc Jan-01 Jul-01 Jan-02- Jul-02- Jan-04 80-UBC Co-Inc CO-URC to-Inc Jul-06 00-106 Current USDBRL rate: 1.74 (31-Dec-2009) Jan-07- Jul-07- Jan-08- Jul-08- Jan-09- USDBRL GS forecast CS forecast -60-inc Jan-10- Jul-10- Jan-11- Jul-11 On a real effective trade weighted basis, the BRL has strengthened by 26% in 2009 and is expected to appreciate even further. USDBRL forecasts 2010 2011 GS 1.60 CS 1.60 1.80 Challenges facing Brazilian businesses are, amongst several; strong Real, high taxes, poor infrastructure, tight labour market, bureaucracy, expensive credit and escalating costs amongst others © Wärtsilä WÄRTSILÄ#100 CORPORATION Pre-salt reserves are likely to turn Brazil into a true oil World Proven Oil Reserves by Country Including pre-salt potential 1) 264 138 150 115 102 113 98 87 79 120 8 90 60 30 83- 2) 53 53 41 40 40 Saudi Arab Iran Iraq Kuwait Brazil - Bullish UAE Venezuela Russia Brazil - Conservative Libya Inclusion of pre-salt discoveries - to date should move Brazil well into the top-10 in world-wide proven reserves. 40000 30000 20000 70000 major... Brazil's proven oil reserves as per year-end 2007 amounted to 13 bn boe of which roughly 90% is offshore, compared to the world average of 18% 36 29 29 28 27 15 (3) 13 12 12 98 Kazakhstan Nigeria USA Canada Qatar China Brazil - Proven Algeria Mexico Angola Norway 60000 50000 Life after pre-salt 1) According to statements made by Brazilian government officials and Petrobras' CEO, the potential reserves of the recently discovered pre-salt area in Brazil could be as large as 70-100 bn boe 2) Our internal analysis, when only taking into account high- and medium-probability blocks* from the Santos Basin, arrives at minimum of 40 bn boe in pre-salt reserves. 3) IEA World Energy Outlook 2008 worldwide proven and probable (2P) reserves used as a proxy as the BP estimates did not provide a split into onshore and offshore 10000 0 ESBL 1955 1957 1959 - 1961 1963 T 1965 1967 - 6961 1971 1973 SLB 19771 1979- сод 1961 985 WÄRTSILÄ#1111 Wää December 2012 1000 1271 2000 1 336 3 000 1 500 1540 Petrobras' oil reserves (Sep-2012) • Proven Reserves: 15.7 bn boe • Potential Recoverable Volumes: 15.8 bn boe 4 000 1 493 5 000 1 684 kboe/day Petrobras' domestic oil production forecasts (OGX could offer upside) 0 T 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 * Actual 2012-2016 BP . Of which roughly 90% is offshore vs. the world average of 18% • Growth in the oil & gas market driven by pre-salt development 1778 1792 1 855 CORPORATION The new Petrobras President's initiative of realistic targets 1971 2004 2022 Petrobras has been known for not reaching its production targets and its projects being delayed. To change this, they introduced a new project management structure which should give more reliability to their targets. WARTSILA 2022 2 022 2181 2 341 2500 2925 T 2011 2012 2013 2010 BR strategy * 2014 2015 2016 2017 2018 2011-2015 BP Petrobras' 2012-2016 business plan 2019 • Domestic exploration &production spending totals USD 131.6 billion 2020 ⚫ Of which USD 25.4 billion (19%) is earmarked for exploration * Business plan Source: Petrobras investor presentation Sep-2012, 2010 WBR strategy for old production forecast 3 350 3 775 4 200#12CORPORATION Main obstacles when doing business in Brazil © Wärtsilä Bureaucracy and complex tax legislation Lack of skilled manpower, specially in the shipbuilding & offshore market Expensive real estate in the main cities. Lack and/or expensive financing solutions Local content rules potentially affecting competitive landscape Lack of some infrastructure might impact the logistics. Security constrains in some areas WÄRTSILÄ#13SHIP POWER " © Wärtsilä 0 0 0 0 0 0 0000 The development of environmental solutions and gas technology will be our priority in meeting the evolving needs of our customers. WÄRTSILÄ#14SHIP POWER © Wärtsilä Luiz Barcellos Name: Luiz Barcellos Age: 54 Mechanical engineer Married, 2 daughters Wärtsilä: Working at WBR since Nov. 1997 1st contact with Wärtsilä in 1987 Long experience in shipbuilding and marine businesses Current position: General Manager Ship Power Director Wärtsilä Brasil WÄRTSILÄ#15LEADER IN THROUGH OFFERING © Wärtsilä SHIP POWER Ship Power's focus on growth OUR STRATEGIC GOAL To be recognised as the leading solutions provider in the marine industry for: Efficiency Gas and dual-fuel solutions VIKING AVANT Environmental solutions • Lifecycle solutions for ship owners and operators Enhanced system integration for the ship building industry • The best product sales and delivery process for the marine industry WÄRTSILÄ#16© Wärtsilä 10,000 Million boe 36,000 SHIP POWER Petrobras Today: Proved Reserves + Potential Recoverable Volumes: 31.5 bi boe Petrobras' Proved Reserves: 15.7 bi boe Potential Growth: + 15.8 bi boe 30,000 25,000 • 20,000 15,000 2005-2010: more than 50% of new discoveries around the world were in deep water, with Brazil representing 63% of these discoveries. (PFC Energy) From 2005 to 2012 Petrobras declared 63 discoveries in pre-salt area and 189 in other areas to ANP. 2030: Brazil should present the highest growth production among the countries that are not members of OPEC. (PFC Energy) 5,000 0 1965 1970 1975 • Added Reserves in 2011 = 1.24 billion boe. Petrobras' CEO presentation 20th September 2012 1980 1985 1990 960 Pre-Salt Added Reserves 1 billion boe. 1995 2000 2005 Life after pre-salt BR PETROBRAS Potential Growth Concession - Potential Recoverable Volumes 10.8 bi boe Transfer of Rights 5.0 bi boe 15.71 Ultra-Deep Water 5.3 bi boe (>1,500 m) 7.9 bi boe Deep Water (300-1,500 m) Shallow-Water (0-300m) 1.2 bi boe Onshore 1.3 bi boe Reserve/Production Ratio 19.2 year. 2010 2011 WÄRTSILÄ#17SHIP POWER Construction of 137 Units: Drilling, Production and Vessels Oil Production, Brazil: 2,022- 4,200 kbpd 23 PU contracted 15 to be contracted 2 PU 3 PU 7 2 PU 7 Drilling rigs PU 7 Oil and NGL production curve (kbpd) PU 1 6. Drilling 9 Drilling rigs 2 4 PU 5 8 rigs PU PU 6 Vessel 5 PU A Drilling 8 rigs Drilling 10 5 Vessel (10) 4.200 rigs 1 4 28 Drilling Rigs 2 Vessel Drilli contracted 2 Rig 5 Vessel (17) 5 to be contracted Drilling 8 rigs 8 Vessel (15) 49 Ships contracted 8 Vessel S Vessel (20) 3 S 3 1 Vessel 5 Vessel Vessel (23) 2.500 S (9) (12) 2.022(1) (21) (9) Construction of 38 Production Unit (PU) up to 2020 50 Drilling Rigs up to 2020 49 Ships up to 2020 2011 2012 2013 2014 2015 2016 2017 2018 Petrobras' CEO presentation 20th September 2012 © Wärtsilä 2019 2020 WÄRTSILÄ#18SHIP POWER Oil and NGL Production Curve (kbpd) 2,022 2011 Pacific Mistral DRU - 50 Drilling Rigs: 2012 - 2020 (PAD Iracema North) Oil Production, Brazil: 2,022 - 4,200 kbpd Schahin Amazonia (Iguape Drilling) Schahin Cerrado (PAD Júpiter Northeast) Ocean Rig Mykonos (ADR LL Central) Etesco Takatsugu J (Franco SW) P-59 (Peroá) Ocean Rig Corcovado (Iracema High) Deepsea Metro II (Farfan Bloco BM SEAL-11) Schaihn Sertão (Roncador) Sevan Brasil (Sagitário) Odn Delba III (PAD Trachemys Quelônio) P-60** (Block BM-C-27) Am aralina Star (CO South of Tupi Laguna Star Odn I - Norbe X (CO PAD Franco) YCO PAD Francol Odn II - Norbe XI (CO Florim) Odn Tay IV (RF of Albacora) Mangaratiba (Florim) Itaunas (Exploration) Interlagos (Exploration) Frade Marambaia (Júpiter) Leblon (lara Arpoador (Lula North) Camburi (Franco East) Surround) (South of Portogalo Copacabana Guará) Botinas (lara (Florim) (Franco NE) Pituba Surround) Comandatuba Urca (lara NW) Itapema (Exploration) (Franco East) Ipanema Salinas (Exploration) Guarapari (Júpiter) (lara NW) Siri Sahy (Exploration) Boipeba (NE of Tupi) Bracuhy (Exploration) Ondina (Carcará) Leme (Franco East) (Exploration) TBN 4* TBN 5 4,200 TBN3* Cassino (lara Horst) (Lula North) (Carcará 1). TBN1* Itaoca (lara NW) Curumim (Exploration) Grumari TBN2 Drilling Ships (38) Semisubmersible (10) 2,500 Drilling Rigs Construction 25 up to 2016 50 up to 2020 Auto raising (2) 2012 2013 2014 2015 * Under negotiation, to be confirmed in the contracts signature; ** P-59 and P60 drilling rigs were constructed in Brazil Petrobras' CEO presentation 20th September 2012 © Wärtsilä 2016 2017 2018 2019 2020 WÄRTSILÄ#19SHIP POWER Oil and NGL Production Curve (kbpd) 2,022 FPSO - 38 Production Units: 2012 - 2020 Oil Production, Brazil: 2,022 - 4,200 kbpd C05 P-70 (Franco 4) P-66 (Lula High) (Lula Ext. Sul) C06 P-71 (South of P-67 (lara Horst) Guará) (Lula Central) P-76 Júpiter P-58 P-68 (NE Tupi) Cid. São Paulo (Norte Pg. Baleias) (Lula South) Afretada P-73 (Carcará) Maromba Espadarte III P-74 (Carimbė) Bonito C09 P-62 (Sapinhoá (Franco 1) Pilot) (Roncador mod. IV) Aruana Sul Pq. Baleias (Florim) C08 Z2 (lara Surround) P-72 CO7 Cid. Paraty (Carioca) Cid. Ilhabela (lara NW) (Franco 5) 4,200 (Lula NE P-69 (Sapinhoá P-77 Pilot) (Lula North) Espadarte Cid. North) (Franco 3) Anchieta P-61 e P-63 Cid. Z1 P-75 (Baleia Azul) (Papa-Terra). Mangaratiba Cid. Itajaí P-55 (Iracema tracema Norte (Franco 2) (Baúna e Piracaba) (Roncador mod. III) South) 2,500 Production Units Construction 19 up to 2016 38 up to 2020 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Petrobras' CEO presentation 20th September 2012 © Wärtsilä WÄRTSILÄ#20SHIP POWER P-63 Papa-Terra (Genset Modules) • More than 100MWe • 6x 18V50DF in 3 modules • Wärtsilä design and manufacture • ● • • Running on tri-fuel: treated crude, MDO and treated well gas Reducing Carbon Footprint with as much as 93,000 tons per year • Fully operational modules Official test concluded in October 2012. © Wärtsilä WÄRTSILÄ#21SHIP POWER Oil and NGL Production Curve (kbpd) Tankers - 49 Promef's Ships: 2012-2020 Oil Production, Brazil: 2,022 - 4,200 kbpd Gaseiro 6/8 Suezmax 7/10 Promar Suezmax DP 414 EAS Suezmax 4/10 EAS EAS Panamax 1/4 EISA Mauá Panamax 4/4 EISA Mauá Suezmax 9/10 EAS Aframax 515 EAS Bunker 2/3 Superpesa Afiamax DP Produto 3/3 Suezmax DP 1/4 1/3 EAS Panamax 214 EISA Mauá Gaseiro 38 Promar EISA Mauá EAS Aframax 115 EAS Aframax DP Suezmax DP 213 Gaseiro 7/8 Suezmax 5/10 EAS Suezmax 8/10 Promar EAS Produto 315 EISA Mauá 214 EAS EAS Bunker 3/3 Suezmax DP João Cândido (Suez max 1/10) EAS Produtos 1/3 Produto 15 EISA Mauá Superpesa Zumbi dos Palmares Gaseiro 1/8 Promar EISA Mauá Produto 415 EISA Mauá 314 EAS Aframax DP Suezmax 10/10 Aframax 3/5 EAS 313 EAS Sérgio (Suezmax Buarque de 2/10) Panamax 3/4 Gaseiros 4/8- EAS Promar Aframax 215 EAS Bunker 113 Superpesa EAS EISA Mauá Holnda (Product 2/4) EISA Mauá Produtos 2/3 Gaseiro 8/8 Promar Aframax 4/5 EAS 4,200 Produto 5/5 José Alencar Suezmax 6/10 EISA Mauá EISA Mauá (Product 4/4). EAS Produto 25 Celso Furtado (Product 1/4) EISA Mauá EISA Mauá EISA Mauá Rômulo Almeida Gaseiro 2/8 (Product 3/4) Suezmax 310 Promar Gaseiros 5/8 EISA Mauá Promar EAS 2,022 2012 2011 2013 PROMEF: Modernization and Expansion of Transpetro's Fleet Program Petrobras' CEO presentation 20th September 2012 © Wärtsilä 2,500 Ship Construction 31 up to 2016 49 up to 2020 2014 2015 2016 2017 2018 2019 2020 WÄRTSILÄ#22SHIP POWER Today's business environment ⚫ 47 Shipyards; • 11 New yards under construction; • 59.000 workers directly employed; • 6.2 Million DWT order book; • 18 Offshore Oil Platforms under construction; • 28 Offshore Deepwater Drilling Rigs. contracted to be built in Brazil. • 7 Offshore Deepwater Drilling Rigs being negotiated. Brazilian Shipbuilding Scenery Petrobras demand Demand assured for the coming years (2012-2020) in the world's largest E&P investment program: • 38 Production platforms; • 50 Drill rigs; • 500 Offshore supply vessels; • 80 Tankers. © Wärtsilä 22 22 © Wärtsilä WÄRTSILÄ#23SHIP POWER © Wärtsilä Brazilian Shipbuilding Scenery Main Shipyard and Construction Sites Erin - Manaus (AM) ct BA Atlântico Sul Shipyard - Ipojuca (PE) Promar-Ipojuca (PE) Tomé Engenharia/Ferrostaal (AL) São Roque - São Roque do Paraguaçu (BA) Enseada do Paraguaçu - Maragogipe (BA) Oceano Atlantico OcwARE Pacifico Jurong Aracruz - Aracruz (ES) BrasFels Shipyard - Angra (RJ) OSX Shipyard - São João da Barra (RJ) Nuclep Site - Itaguai (RJ) Superpesa - Niterói (RJ) Mauá - Niterói (RJ) Brasa-Niterói (RJ) Inhaúma - Rio de Janeiro (RJ) UTC Site - Niterói (RJ) о DM/TKK Engenharia - Itajai (SC) • IESA-Charqueadas (RS) Honório Bicalho - Rio Grande Port (RS) Rio Grande 1-ERG1 (RS) Rio Grande 2-ERG2 (RS) Eisa (RJ) Cat Gat WÄRTSILÄ#24SHIP POWER Ranking DWT under construction Estate DWT Orders DWT Part. % 1º Pernambuco 3,072,000 30 49.79 29 Rio de Janeiro 1,367,900 76 22.17 3º Rio Grande do Sul 1,120,000 13 18.15 4º São Paulo* 330,500 108 5.36 5º Santa Catarina 146,736 48 2.38 Others 133,000 37 2.16 Total 6,170,136 312 100 © Wärtsilä WÄRTSILÄ#25POWER PLANTS " The world needs affordable, clean, flexible and reliable power. © Wärtsilä WÄRTSILÄ#26POWER PLANTS © Wärtsilä Jorge Alcaide Name: Jorge Alcaide Age: 47 Mechanical engineer - 1988 MBA in Energy Business -2005 Married, 3 children Wärtsilä: Working at WBR since Jan 2008 Long experience in the Power market since 1997 Current position: Regional Director, Power Plants WÄRTSILÄ#27POWER PLANTS From where the Brazilian electricity comes? Total installed capacity: 127 GW (July 2012) Annual growth: 4% per year Nuclear / Nuclear Brazil 2,7% Derivados do petróleo / Oil products Carvão e derivados' /Coal 1,3% Hidráulica / Hydro 74,0% 3,6% Gás natural/Natural gas 6,8% Eólica/Wind 0,4% Biomassa/Biomass² 4,7% Importação/Imports 6,5% Chart 1.1 Domestic Electricity Supply by Source - 2010 - BRAZILIAN ENERGY BALANCE 2011 | year 2010 Hydro has limited growth potential (Amazon jungle) © Wärtsilä WÄRTSILÄ#28POWER PLANTS The Interconnected grid – 95,500 km and growing - pia Rio Branco Chile © Wärtsilä Venezuela Guiana Francesa Suriname (Guiana Manaus Tucuruí Serra da Mesa, Goiânia Bolivia Cuiabá C.Grande Horizonte 2012 Brasilia S.Luís Teresina Fortaleza Natal João Pessoa Recife Maceió Aracaju Salvador Annual increase of 3,000 km; 230kV = 41,500 km 345kV = 9,800 km 440kV = 6,700 km 500kV = 33,200 km 600kV = 1,600 km [DC] 750kV = 2,700 km B.Horizonte Vitória Paraguai R.Janeiro São Paulo Itaipu Curitiba Legenda Yaciretá Blumenau Existente Futuro Garabi 138 kV 230 kV Argentina Uruguaiana 50 MW Livramento 70 MW 345 kV 440 kV P.Alegre 500 kV 750 kV ±600 kV cc Uruguai Centro de Carga Complexo Paraná B Paranapanema C Grande D Paranaíba E Paulo Afonso Número de circuitos existentes Source: ONS WÄRTSILÄ#29POWER PLANTS To put it in prospective - From Finland to Portugal Colômbia Venezuela Peru Isolated Grid Rio Branco Chile © Wärtsilä Surin me Guiana Guiana Frances Manaus Tucuruí Teresina Serra da Mesa Golinia Bolivia Cuiabá C.Grande Brasilia LACERDAS SANTANEM Suécia Noruega ALEXLOREST GUA BA ONOP Finlândia BELL MAR MARABAY TUCURUI LINA ARABA + ° & PORTO PRANO N DA MES BRASÍLA BARREIRAS Londres GOLANA •Parts B.Horizonte Vitó GRANDE BAD LUS FORTALEZA Moscou MOSBORO NATAL COREMO PESSOA MACEIO TONGO IRECE C ARACAJU ABON MOGAMBINO RACLIA ELINAPOLIS FLORIANOPOLS EUROPE 3.900 km Argentina Paraguai Yaciretá Itaipu Garabi Uruguaiana 50 MW Livramento 70 MW Uruguai 3.750 km BRAZIL URUGLIAIANA Lisboà ITAIPU CURTA LIVRAMES CANDIOTA MTORIA DO PALMAR WÄRTSILÄ#30POWER PLANTS - Brazilian energy market – overview National energy by generation type Total installed capacity: 127 GW (July 2012) 98% of total consumption is in the interconnected area ISOLATED AREA Acre Macapa INTERCONNECTED 6,4% 1,3% 10,5% Belém AREA 5,8% 1,5% Gas S.Luis Fortaleza MANAUS Natal Tocantins Teresina Parnaíba J. Pessoa RECIFE Maceió 7,6% ■ Coal 1,6% Biomass Nuclear Rondônia Cuiabá BRASILIA Goiânia S.Francisco Aracajú ■ Hydro Salvador Oil Paranaíba C.Grande GRANDE Paraná Tietê Belo 65,3% Imported Wind Horizonte Vitória Paraiba do Sut Paranapanema Rio de Janeiro All hydro power plants are centralized and operated in an integrated way, to take advantage of the hydrological diversity of reservoirs. ITAIP Iguaçu Argentina Uruguai SÃO PAULO Curitiba Florianópolis Jacui Porto Alegre Generation: Transmission: Distribution: 85% State-owned 15% Private sector 26 companies (15 private) 64 companies (80% private) • The majority of potential locations suitable for large hydropower plants are located in the Amazon region, far from the consumer centers. Environmental issues could avoid the full development of the existing hydropower potential in that region. Thermal power generation is the only source capable to provide reliability to the interconnected grid. Note: Most of Wärtsilä power plants located in the interconnected area have been used as stand-by capacity for the renewable plants (hydro/wind/biomass)#31POWER PLANTS Economic growth to drive the increase in installed power Annual change in GDP vs. increase in electrical energy consumption (% p.a.) National energy demand (TWh/year) TWh 10 8 % CO 6 4 2 ∞ á Þ Ń O -8 -6 -10 1 000 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 500 2005-2030 CAGR: 4% 2001 Rationing © Wärtsilä 2008 Financial Crisis GDP Electrical Energy Consumption 0 - 1990 1995 2000 2005 2010 2015 2020 2025 2030 The historically strong correlation between real GDP growth and the annual increase in eletrical energy consumption suggests that the strong demand for power plants is to continue. The National Energy Agency EPE anticipates the annual energy demand to more than double during 2010-2030, from less than 500 TWh to more than 1000 TWh. Source: EPE Plano Nacional de Energia 2030; IBGE; MME WÄRTSILÄ#32© Wärtsilä 1000 900 POWER PLANTS Energy consumption Real x Forecast (TWh x year) 800 700 600 500 400 300 200 100 0 1970 1975 1980 1985 1990 1995 1996 1997 1998 1999 2000 Real 2001 2002 Growth 4% + per year 2003 2004 2005 Forecasted 2006 2007 2008 2009 2010 2015 2020 2025 2030 Brazil - Real Electrial Energy Consumption 1995/2010 WÄRTSILÄ#33• POWER PLANTS Brazilian Energy Market: future opportunities Demand Growth: - - - Government forecasts minimum 4% load growth per year until 2020 New large hydroelectric projects are no longer available close to the load centers. New offshore discoveries will lead to an increase of natural gas availability over 5,000 MW per year for the next years! New hydro plants are designed to be run-of-rivers need of thermal back- up. Natural Gas thermal plants opportunities! © Wärtsilä WÄRTSILÄ#34POWER PLANTS ASSOCIATIONS Auction in brief: New electricity is purchased through auction 000 Annual energy auction system in brief • Purchase of new energy to meet ANEEL Regulator DISTRIBUTION COMPANIES IPP Implements the project and sells the energy. (UTILITIES) Define demand and buy the energy from the suppliers (IPP). EPE Runs the Energy Auctions, based on the Utility demands. © Wärtsilä WÄRTSILÄ Solution provider and Influencer. • consumption growth Electricity demand based on distribution companies evaluation Three types of auctions for new energy A-3 (thermal and biofuel projects; COD in three years time) A-5 (long lead-time projects such as hydro; COD in five years time) Reserve and Emergency (in case energy demand requirements are not met with the above) New energy only: for new power plants or expansion of existing ones Open for all technologies (hydro, thermal, biomass, wind) Thermoelectric power provides supply reliability in dry periods Long-term PPA (15 years for thermal plants) Note: See the Appendices for full desWÄRTSILÄ#35POWER PLANTS • • Power plants Installed capacity 25 Power Plants Brazil - December 2012 + 4 under constrution = 29 total 2,283 MW installed capacity + 356MW under construction = 2,639MW 1,836 MW under O&M contract Gera Manaus - 85MW Petrolina - 140MW Termocabo - 52MW Linhares - 204MW (Gas) Borborema - 175MW OHING Manauara- 85MW Viana - 175MW Geramar I & II - 330MW Maracanaú - 168MW Suape II-380MW © Wärtsilä#36SERVICES WARTSILA " Services business landscape © Wärtsilä WÄRTSILÄ#37SERVICES © Wärtsilä Robson Campos Name: Robson Campos Age: 42 Lawyer - 1995 Corporate Finance - 2004 Married, 2 children Wärtsilä: Working at WBR since Jul 1990 Long experience in the Finance, Power and Services market since 1995 Current position: President, Wärtsilä Brazil Head of Services WÄRTSILÄ#38SERVICES · • © Wärtsilä Wärtsilä Brazil Services today Strong presence in Brazil High quality services, especially in propulsion and O&M O&M agreement or maintenance agreement for every power plant commissioned since 2002 Established relationships with Offshore customers Underlying market potential in both power plants and services provides strong future market potential WÄRTSILÄ#39SERVICES - - Opening Ceremony Q1 2013. © Wärtsilä Workshop - Niterói WANTSILA - Service for: engines, thrusters, Electrical and Automation, etc. - Training Center for yards, local manufacturing and operators. WÄRTSILÄ#40SERVICES SUBRA: Activities & locations Engine services Propulsion services Electrical & automation services Service agreements Training services Service projects WÄRTSILÄ Engine Services WÄRTSILÄ Propulsion Services WÄRTSILÄ Automation Services Service locations and workshops WÄRTSILÄ Reconditioning Services WÄRTSILÄ Operations & Management WÄRTSILÄ Training Services - Rio de Janeiro: Area 2332 m² (B type) - Manaus: Area 3400 m² (C type) Power Plants and Offshore O&M and maintenance agreements, 1.2 GW covered by O&M agreements Maintenance agreements: 2 • More than 620,000 man-hours worked in 2009 serving our customers • Brazilian cabotage owners current port calls: 152 per month Main ports: Santos and Suape (resp. 26 and 23 monthly calls) Petrobras offshore expansion: "~300 new installations by 2020 © Wärtsilä WÄRTSILÄ 40#41SERVICES Key future target segments Growth area: Strategy: Offshore services Capture the after-sales to the suppliers to the Brazilian offshore market. Partner-up with them from DAY 1 they are commencing work off the Brazilian coast. Growth area: Strategy: Propulsion services Build up our own capabilities to perform the works in-house. Offer services together with the engine and offshore services. Growth area: Strategy: © Wärtsilä O&M services Secure orders with IPP's in energy auctions and projects in the isolated grids. Industry self generation projects and O&G installations Main focus: • Footprint in offshore market • Merchant fleet customers (O&M agreements and propulsion services) • ⚫IPP new customers (O&M agreements) WÄRTSILÄ#42SERVICES © Wärtsilä Developing Local Manufacturing = ...to create a business model meeting a volatile volume demand and high local content requirements Multi Product Factory WÄRTSILÄ#43THANK YOU! WÄRTSILÄ WÄRTSILÄ