Cablegate: Rio Pol/Econ Roundup July 2005 - I

This record is a partial extract of the original cable. The full text of the original cable is not available.




E.O. 12958: N/A
SUBJECT: Rio Pol/Econ Roundup July 2005 - I


--WebJet Adds Competition as a Low Cost Alternative Airline
--Local Ports Receive Low Ratings in Exporter Survey
--Companhia Vale do Rio Doce Reaches "Investment Grade"
--Hugo Chavez Accepts Vila Isabel's Invitation for Carnival
--New Service for Receiving Remittances
--ITER, Brazil and Niobium
--Minas Gerais Energy Company to Operate in Chile
--Aircraft Maintenance Companies Exempt from ICMS in Rio

WebJet Adds Competition as a Low Cost Alternative Airline
--------------------------------------------- ------------

1.WebJet, a new Brazilian commercial airline, began
operations on July 12 under the concept of "low cost, low
fare," launching a price war. Within days of WebJet's
entrance into the marketplace, Varig, Gol and TAM cut
prices up to 80% on competing routes. Currently, WebJet
routes include the cities of Rio de Janeiro, Sao Paulo,
Brasilia and Porto Alegre.

2.Rogerio Ottoni, the owner of WebJet, expects first
year revenues to be between USD 100 and USD 120 million,
with the company flying two aircraft. The company is
currently leasing its first aircraft, a Boeing 737, from
Ansett. As WebJet expands its fleet, it will add new
cities to its routing.

3.TAM also announced an expansion of its international
flight schedule, with an addition of a second daily flight
from Sao Paulo to Paris. This is due to the rise in demand
for its Paris route, which has an occupancy rate of 79%.
Gol is also working on deals with Delta and Air France to
become the regional connection carrier for both airlines.

Local Ports Receive Low Ratings in Exporter Survey
--------------------------------------------- -----

4.In a recent survey of Brazil's ports, the Federal
University of Rio de Janeiro's Research Center asked 101 of
Brazil's 300 largest importers and exporters to rate the
countries ports on a scale of 0-10. The median results for
the five principal ports -- Rio Grande (RS), Paranagua
(PR); Santos (SP), Rio de Janeiro (RJ) and Santos (SP)
was a score of 5.2. This rating highlights the significant
measures that each port must take to meet the demands of
Brazil's growing economy. Some necessary changes are
currently in progress. Next week, the pier and access
canal to the port of Niteroi (RJ), which had been without
dredging for 25 years, will finally reach its original
depth of eight meters.

Companhia Vale do Rio Doce Reaches "Investment Grade"
--------------------------------------------- --------

5.Moody's raised Companhia Vale do Rio Doce (CVRD) debt
to "investment grade" status, making CVRD the first
national capital company to reach this level. Investment
grade status is reserved for a select group of companies
that have a very low investment risk. CVRD is now ranked
at Ba2, two degrees higher than last year, and four degrees
higher than the Brazilian national average. Moody's
calculated CVRD's rank based on four categories: credit
risk, country risk, the company's dependence on government
and the government's dependence on the company.

Hugo Chavez Accepts Vila Isabel's Invitation for Carnival
--------------------------------------------- ------------

6.The president of the Unidos de Vila Isabel, Wilson
Moises, announced that Hugo Chavez has accepted his
invitation to participate in the samba school's 2006
Carnival parade. Two Venezuelan national companies, PDVSA
(petroleum) and Corpozulia (coal), are sponsoring Vila
Isabel's Carnival presence.

New Service for Receiving Remittances

7.Sicoob Crediriodoce, Banco Rendimento and Central
Crediminas have formed Remissa Verde Amarela (Green-Yellow
Remittance), which was launched at the 36th Farming and
Cattle Raising Exposition in Governador Valadares (MG).
Access to this remittance service will be available in the
United States, Canada and Europe through agreements with
eight money transfer agencies (which together have more
than 10,000 stations in these three regions).

ITER, Brazil, and Niobium

8.Brazil seeks to participate in the ITER (International
Thermonuclear Experimental Reactor) project, which is being
built in southern France by the United States, the European
Union, Russia, Japan, Korea and China. Brazil might be a
good fit for ITER as the country possesses the world's
largest niobium reserve (in Minas Gerais), accounting for
two-thirds of the planet's total. Niobium, a metal with
excellent conducting properties, will be used to construct
large springs used to create a magnetic field to drive the
nuclear fusion process within the reactor.

9.According to David King, ITER's principal scientific
advisor, if the project is developed commercially, there
will be a large demand for niobium. King also commented
that Brazil's more than 100 nuclear fusion scientists could
greatly contribute to the project. Countries that seek
participation in the ITER project must contribute at least
10% of the cost of the reactor over the course of 10 years.

Minas Gerais Energy Company to Operate in Chile
--------------------------------------------- --

10.For the first time in the company's history, Companhia
Energetica de Minas Gerais (CEMIG) will work outside of
Brazil. CEMIG and Companhia Tecnica de Engenharia Eletrica
de Sao Paulo (ALUSA) have formed a consortium to construct
and operate a new transmission line in Chile. The
estimated project investment is USD 60 million, with annual
revenue of USD 6.5 million contemplated over the next 20
years. Competing project bids came from Chile, Spain and
Colombia. The project envisions construction of a 190
kilometer, 220 KW double-circuit transmission line between
the Chilean cities of Charrua and Nueva Temuco.

11.Marcio Ribeiro, CEMIG's superintendent of
administration and new business, commented that this
project will leverage the internationalization of the
Minas-based energy company. Ribeiro noted that the project
is a very low-risk venture due to Chile's strong, stable
economy. The transmission line construction phase is
estimated at 37 months.

Aircraft Maintenance Companies Exempt from ICMS in Rio
--------------------------------------------- ---------

12.The State of Rio de Janeiro recently decided to exempt
aircraft maintenance companies from the Goods and Service
Tax (ICMS), resulting in an immediate 19% tax reduction for
local companies such as General Electric Celma in
Petropolis (RJ) and Varig Engineering and Maintenance
(VEM). This tax cut provides a great advantage to the
aircraft maintenance market, which accounted for
transactions of USD 1.7 billion in Latin America last year.

13.The tax cut also solidifies the State's commitment to
Infraero's Airport-Industry project which turns unused
airport space into valuable aircraft industrial service
areas. Additional airports involved in the Airport-
Industry projects are Petrolina (PE), Tancredo Neves (Belo
Horizonte, MG) and San Jose dos Campos (SP).


© Scoop Media

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