Chamada Publica FEPprospec0311 Relatorio7 Sumario Ingles

Diversification of the Brazilian Chemical Industry
Study Summary
November 2014
Study financed by the National Bank for Economic and Social Development
(BNDES)
This document was prepared by the consortium Bain & Company / Gas Energy as a summary of the Study for the Diversification of the Brazilian Chemical Industry. To access the reports produced as part of
the Study please visit the site: www.bndes.gov.br/SiteBNDES/bndes/bndes_pt/Institucional/Apoio_Financeiro/Apoio_a_estudos_e_pesquisas/BNDES_FEP/prospeccao/chamada_industria_quimica.html
The Study for the Diversification of the Brazilian Chemical

Industry was financed by BNDES/FEP
BNDES/FEP The Fund for Structuring Projects
O&G
Study on
regulatory regimes
Benchmarks for
the management
of future resources
(sovereign funds)
Proposals for
strengthening the
value chain for
goods and services
in E&P
Ports
Airports
Upgrades to the
regulatory
framework
Framework for
concessions
Unification and
standardization of
the regulatory
agencies
Performance
targets for Port
Authorities
Incentives for
operating airports
Chemicals
Opportunities to
diversify the
Brazilian chemical
industry
Metrics and
incentives for
public managers
- Outside of the scope:

thermoplastics,
pharmaceuticals and
fertilizers
Simplification of
regulatory
agencies
Actions / tools for an

industrial policy for
the sector
The Study took place over 18 months

2013
May
2014
Jun
Jul
Mapping
and Segmentation
S1
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Initial
prioritization of
segments
Jun
S
Jul
Seminars
Aug
Sep
Oct
Industry
PE Panels
S2
Report 1
Identification of opportunities in
selected segments
Report 3
Benchmarking of
industrial policies
Final
prioriti
-zation
of
opportunities
Report
4
Financial and
economic analysis
End of Study
Report 2
Business model
design
S3
Design of development
policies
Report 5
Report 6
Prioritization and
validation
PE
S4
F
Report 7
The Study was documented in Reports which are available

to the public on the BNDES website
Report 1
Proposal for the segmentation of the chemical industry (+ annexes)
Report 2
Proposal for the prioritization of the segments of the chemical industry (+ annexes)
Development policies Mapping of Best Practices
Report 3
Segments of secondary focus (Acrylic Acids; Catalysts; Chlorine; Glues, Adhesives and Sealants; Pigments,
Titanium dioxide and dyes; Industrial intermediates; Methane deriv.; Propylene deriv.; Elastomers; Cleaning
products; Laboratory reagents)
Analysis of the primary focus segments according to the methodology of Porters Diamond
Crop protection
Oleochemicals
Chemicals for E&P
Lubricants
Chemicals for concrete
Mining chemicals
Analysis of the primary focus segments according to the methodology of Porters Diamond
Report 4
Report 5
Food additives
Cellulose derivatives
Polyurethanes
Aromas, flavors and fragrances
Silicon derivatives
Renewable chemicals
Aromatics
Carbon fiber
Leather chemicals
Butadiene and derivatives
Specialty polyamides
Surfactants
Cosmetics and personal hygiene
High tenacity polyester
Research about the local competitiveness of the segments

Public policies for development
Financial - economic models (Carbon fiber, Methionine, Siloxane, Polyalphaolefins)
Report 6
Report 7
Petrochemical raw materials
Regulation
Innovation and technology
Sugarcane raw materials
Infrastructure
Taxation
Final Report (Summary)
Initially, the chemical industry was separated into 66

segments, with products grouped by a business logic
Feedstock
Organic building blocks

Acrylic Metacryacids and lic acids
deriv. and deriv.
Fatty
acids
deriv.
Inorganic building blocks
Butadiene
Cellulose Inorganic
Aromatics isoprene
deriv.
acids
deriv.
Copolyme Cumene
ElastoParaffin
Tar deriv.
rs
deriv.
mers
Lubricants
Methane
deriv.
Ethylene
oxide
Ethylene Industrial
deriv.
gases
Other
propylene Vinyl deriv.
deriv.
Aluminum
deriv.
Iodine
deriv.
Silicon
deriv.
Boron
deriv.
Chloralkali
deriv.
RadioNiobium
active
deriv.
materials
Rare earth
Sulphates
deriv.
Cobalt
deriv.
White
phosphor
us
Nickel
deriv.
Titanium
dioxide
deriv.
Uranium
Elementary
carbon
deriv.
Market
Fine chemicals intermediates
Aramids
Resin intermediates and additives
Industrial intermediates
Specialty polymers
Additives and catalysts
Polybutylene terephthalate
Carbon
fibers
Policarbonates
PolytetraSpecial High tenacity

Polymethylene
Polyamides polyester urethanes
ether glycol
Paints and dyes
Pigments
and dyes
Printing
inks
Paints and
coatings
Polyacetal
Food/Feed
additives
Construction
chemicals
Leather
chemicals
Mining
chemicals
Epoxy
resins
Oilfield
chemicals
Polymer
additives
Catalyzers
Fragrances
and flavors
Soaps, cleaning pr.

Crop
Adhesives,
cosmetics, hygiene protection sealants
Hygiene
and
cleaning
Cosmetics
Crop
protection
Adhesives
and
sealants
Photografic
Photo
processing
chemicals
Other
ExploLab.
Coolants
sives
reagents
Note: The segments Pharmaceuticals, Fertilizers and commodity plastics (PE, PP, PVC e PET) are outside the scope of the Study
32 segments were selected for detailed analysis

(19 for primary focus and 13 for secondary focus)
Imports + Exports (US$B)
and # of segments
Average
price
Growth of
imports
0,75
3%
0,93
6%
2,99
10%
(US$/kg)
(CAGR 08-12)
Note: (1) Average of the sum of imports and exports during the period 2008-2012; (2) Biochemicals were also selected for study and were analyzed as a
segment. Because it overlaps with the other segments, it is not considered in the analysis above; Source: AliceWeb, Bain/Gas Energy Analysis
The 19 segments with a primary focus were studied in

more depth, as were chemicals from renewables
41,8
9,7%
Global
Growth
(07-12)
4,1%
Crop protection
9,7
20,5%
7,6%
16,1%
5.400
500
11,3
Food additives (animals)1
1,10
3,7%
10,1%
458
310
2,5
Butadiene and isoprene deriv.2
1,95
10,0%
5,7%
1,1%
3,2%
860
740
2,5
Aromas, flavors and fragrances
1,20
5,1%
3,3%
6,5%
295
317
5,2
Chemicals for E&P
0,71
3,6%
11,2%
24,6%
85
1,7
Surfactants
1,54
5,7%
3,0%
6,9%
315
185
3,0
Aromatics and deriv.3
2,52
1,6%
3,8%
5,2%
1.154
1,2
Polyurethanes
1,50
3,5%
1,6%
5,8%
944
83
2,7
Cellulose deriv.
0,33
1,3%
6,3%
1,1%
190
37
3,5
Lubricants
4,5
3,5%
1,0%
2,6%
1.127
209
2,4
Food additives (humans)1
0,65
3,0%
3,8%
4,1%
367
625
2,8
Oleochemicals
0,66
2,8%
8,1%
230
179
1,7
Carbon Fiber
0,10
9,4%
7,9%
23,2%
107,4%
97
24,4
Chemicals for mineral processing
0,19
4,1%
2,3%
7,6%
93
2,2
Chemicals for leather
0,38
8,1%
2,8%
3,7%
111
83
1,7
Silicon Deriv.
0,42
3,0%
3,7%
5,2%
190
536
2,5
Chemicals for concrete
0,17
1,7%
3,7%
5,0%
30
1,1
Specialty polyamides
1,28
1,7%
1,9%
-5,2%
509
14
3,4
High-tenacity polyesters
0,13
2,1%
4,5%
-3,0%
70
10
2,0
Segment
Competitiveness
Cosmetics
Brazilian
Brazilian
Market (US$
Share (%)
B, 2012)
Brazilian
Growth
(07-12)
Imports
(US$ M)
Exports
(US$ M)
Unit Price
(US$/kg)
12,4%
830
580
5,4
+ Chemicals from renewables
(1) The segment food additives was divided to facilitate analysis; (2) Accept butadiene and isoprene; (3) Accept BTX
Note: Chemicals from renewables, which overlaps with the other segments, was also analyzed to identify opportunities
Strategic focus on those segments with relevant local

markets and/or competitive local raw materials
DEMAND BASE
COMPARATIVE ADVANTAGE BASED ON FEEDSTOCK

Available and competitive feedstock
Add value in Brazil
CELLULOSE DERI.
Local market
attractiveness
Leverage market to
strengthen local
production chain with
global competitiveness
CROP PROTECT.
OILFIELD CHEM.
COSMETICS
FOOD ADDITIVES
FLAV/FRAGRANCE
Potentially competitive feedstock

Increase availability and strengthen the local
production chain
PETROCHEMICAL
OLEOCHEMICAL
DOWNSTREAM
Feedstock competitive, but emerging tech

Establish chemical value chain from renewable
feedstocks
BIOMASS CHEM
DOWNSTREAM
Brazil has the potential to attract investment in diverse

chemical segments
WHAT WE AIM FOR
IN EACH SEGMENT
IMPACT OF OPPORTUNITIES ON THE TRADE

BALANCE 2030 (US$B)
1
Co-produts of the
comlex2
Reach 30% of global production (20% consumption;

10% export)
Leverage the value of the pre-salt oil, strengthening
chemical chains and downstream industries
Establish a competitive local production chain to meet
the needs of the segment (esp. drilling fluids)
Become a global leader in products from renewables
Achieve self-sufficiency in oils and strengthen downstream chain (Palm derivatives export platform)
Add value to soluble cellulose leveraging downstream
products
Become leader of exports among Latin American
countries
Expand prod. capacity of basic oils to meet growing
local demand
Export silicon based on local production of siloxane
Add value locally to natural extracts in order to attend
the global market
Diverse
Nota: 123Source:
Includes: Aromatics; Butadiene, Isoprene and deriv.; Specialty polyamides; High-tenacity polyesters; and Polyurethanes and its intermediates
Includes impacts of other products prevalent in a complex and not of primary focus to the Study (ex.: fuels and thermoplastics)
Primary focus segments
Bain / Gas Energy Analysis
The opportunities identified have the potential to create an

impact of US$22-38B on the trade balance by 2030
Investments of
US$33-47B to
capture the
opportunities
US$38B
Note: 1 Primary focus segments

2 Includes impacts of petrochemical complex products not of primary focus to the Study (ex.: fuels and thermoplastics)
Source: Bain / Gas Energy Analysis
10
However, some investments would not be competitive

compared with foreign competition: Methionine
EXAMPLE
COST OF PRODUCTION TO SERVE THE BRAZILIAN MARKET:

METHIONINE (Conventional Production)
(Conventional production costs in USA =100)
Brazil vs. USA
(1)
CAPEX in Brazil is
42% higher then in
the US
Natural Gas ~130%
more expensive and
represents:
90% of the gap in
utilities
55% of the gap in
MethylMercaptan
Cash cost
(1)Assumption: WACCUSA=7,8%, WACCBR=9,2%, plant with a 15 years lifespan, model prices in Reais, terminal value with a multiple of
8x EBITDA and 10 year linear depreciation. Not included: IPI-P/C-ICMS of the price of sales.
Source: Intratec, Bloomberg, Bain Analysis
11
However, some investments would not be competitive

compared with foreign competition (2/2): siloxane
EXAMPLE
COST OF PRODUCTION TO EXPORT:

SILOXANE
(Conventional production costs in USA =100)
Brazil vs. USA
(1)
CAPEX in Brazil is
45% higher than in
the US
Natural Gas is
equivalent to 43% of
the gap in utilities
Electricity is
equivalent to 23% of
the gap in utilities
Cash cost
(1)Assumption: WACCUSA=7,8%, WACCBR=9,2%, plant life span of 15 years, model prices in Reais, terminal value with a multiple of 8x
EBITDA and 10 year linear depreciation. Not included: IPI-P/C-ICMS of the price of sales.
Source: Intratec, Bloomberg, Bain Analysis
12
Actions and industrial policies need to be implemented to

improve the investment environment
INFRASTRUCTURE
FISCAL
PETROCHEM. FEEDSTOCK
Railway: Prioritization of certain lines

within the PIL and creation of rail
connections
Tax reform: Design and approval a

federal VAT
Roadways: Improvements in access

to ports and private concessions
Approval of tax exemptions for

investments (REPEQUIM), and for
renewable raw materials (REIQInovao)
Maintain tax exemptions for 1st and

2nd generation feedstock
Gradual alignment of fuel policies
(Local vs. international prices)
associated with the national policy on
Petrochem. feedstock
Extraction of ethane/propane from
natural gas
Use of the federal rights to oil and gas
from the Govt share of the pre-salt
reserve to guarantee its availability
and competitiveness
Coastal Navigation: Improve port

efficiency and incentivize competition
Gas Logistics: Improve gas
infrastructure + support UPGNs
REGULATION
Registration of crop protection
chemicals:
- Simplify the registration of simple
modifications
- Queue management
- Increase capacity to process requests
- Simplify the exports and the competitive
tax equality of imports
Biodiversity access
Demand Regulation:
- Ex: 2Gen Fuels, biodegradables, standard
for thermal insulation, wind energy, low
consumption/electric cars,, use of
hydrophobics and hydrorepellents in
public works
Renewal of Reintegra and adjustment

of the ICMS tax rates
Improvements in competitive
equality
- Increase flexibility in the List of
Exemptions to the Common External Tariff
INNOVATION AND TECH.
SUGARCANE FEEDSTOCK
Prioritization of technological
challenges
Tax exemption for investments

(REPEQUIM)
Inclusion of chemicals in PNPC

(Knowledge platforms) / Inova
Qumica (Chemical Innovation)
Conditions for competitive financing
Professionalization of NITs to
intermediate negotiations for IR
between companies and universities
Inc. flexibility of law 8666 for ICTs
Reduce the timeline for registering
patents
Adjustments to the Lei do Bem
Tax exemption on bioproducts

(REIQ-Inovao)
Incentives for greenfield projects for
biorefineries and renewable chemicals
- Ex. Semiarid: provision of minimum
logistics and irrigation infrastructure along
with risk sharing with private investors
13
Fuel Policy: Increased demand for gasoline and the % of

ethanol in the mix have reduced the production of naphta
PRODUCTION OF NAPHTA REDUCED BY
GASOLINE
Breakdown of the annual production of gas and naphta in Brazil
(Mt/year)
PROPOSALS
Establish a pricing policy for
gasoline consistent with the
international market, aiming to
balance the economic decision
factors in order to reduce the use
of locally available naphta in
gasoline production
Gasoline
Nafta
The relatively higher price of ethanol has led to

a shift in consumption towards gasoline
Naphta has been used in gasoline to balance
the higher octane rating of the ethanol added to
the gasoline
Establish a national policy on

the supply of petrochemical
feedstock, associated with
competitive national and imported
sources, and integrated with the
policy on fuel supply
Sources: ANP, Bain / Gas Energy Analysis

14
Extraction of ethane/propane: the composition of NG

in Brazil allows greater availability of ethane and propane
AN IMPORTANT PORTION OF ETHANE AND
PROPANE ARE FLARED
Portion of ethane and propane in natural gas
produced in Brazil
(%)
PROPOSALS
Enhance technical
requirements and
specifications related to dry NG
to encourage the separation of
ethane for petrochemical use,
considering technical and
economic factors
- Limit the % of ethane permitted in
dry natural gas
The requirements should

consider regional and
temporal aspects related to:
- Need for a minimum scale of natural

gas flows to make the separation of
ethane economical
- Need / development of demand for
ethane in competitive conditions
Source: ANP, MME and Bain / Gas Energy Analysis

15
Federal oil and gas: Government pre-salt O&G share can

be key in increasing availability of Petrochemical feedstock
ESTIMATE
Projection of inflexible local supply of natural gas1
(Mm3/day)
6%
Projection of supply of oil in Brazil

(Mbbl/day)
6%
Govt
share
(Libra)
Extra
Production
Optimistic
Scenario
Production
Downside
Scenario
Actual
Production
Bolivia TOP2
Govt
share
(Libra)
Pre-Salt
Production
(w/o Govt)
Production
outside
Pre-Salt
Notes: 1- The supply of natural gas to the market results from the production of consumption for reinjection, supply of energy for platforms,
flaring, losses during transportation and reductions due to the extraction of liquids from UPGN's
2 Contract with Bolivia is for 30 Mm3/day with a minimum of 24Mm3/day by Take-or-Pay
Sources: ANP, Petrobras Strategic Plan, Bain / Gas Energy Analysis
16
A competitive petrochemical supply chain is important for

a diverse set of industries
2ND GEN.
PRODUCTS
PETROCHEM
FEEDSTOCK
1ST GEN.
PRODUCTS
Oil
Natural
Gas
Methane
Ethane
Polyurethanes
Propylene
Surfactants
Propane
Butane
Butadiene
MACHINES & EQUIP
SHOES
Styrenics
Ethylene
Naphta
AUTOMOTIVE
Thermoplastics
HOME APPLICANCES
CIVIL CONSTRUCT.
SPECIALTY PAINTS
CROP PROTECTION
CHEMICALS E&P
COSMETICS
TEXTILES
APPAREL
PLAST. & PACKAGE.
FERTILIZERS
FURNITURE
RUBBER
Aromatics
Polyamides
C1 Chain
17
Main assumptions of proposed models
Industrialization of O&G from the pre-salt in Brazil,

increasing the availability of basic petrochemical products
in the long run
Auctions of long-term contracts that enable the

construction of competitive new petrochemical plants for
the chemical chains studied
Mechanisms allowing the transfer of price competitiveness
for the downstream chemical chains
18
One way to use the governments O&G share is to auction

the O&G while ensuring its use in chemicals
FEEDSTOCK
GOVT SHARE
1ST GEN.
PRODUCTS
2ND GEN.
PRODUCTS
Oil
Ethylene
Styrenics
Polyurethanes
Surfactants
Thermoplastics
Poliamides
C1 Chain
Natural
Gas
Propylene
Butadiene
Aromatics
Methane
Refinery, cracker and
reform and/or UPGN
Diverse petrochemical plants
AUTOMOTIVE
MACHINES & EQUIP
SHOES
HOME APPLICANCES
CIVIL CONSTRUCT.
SPECIALTY PAINTS
CROP PROTECTION
CHEMICALS E&P
COSMETICS
TEXTILES
APPAREL
PLAST. & PACKAGE.
FERTILIZERS
FURNITURE
RUBBER
1
Auction of
Oil and
Natural
Gas
Minimum
volumes of 1G
products for
new local
projects
Policies to
strengthen the
downstream
chemical chain
19
The second option would be an auction of the 1st

generation products
FEEDSTOCK
GOVT SHARE
1ST GEN.
PRODUCTS
2ND GEN.
PRODUCTS
Oil
Ethylene
Styrenics
Polyurethanes
Surfactants
Thermoplastics
Poliamides
C1 Chain
Natural
Gas
Propylene
Butadiene
Aromatics
Methane
Refinery, cracker and
reform and/or UPGN
Diverse petrochemical plants
AUTOMOTIVE
MACHINES & EQUIP
SHOES
HOME APPLICANCES
CIVIL CONSTRUCT.
SPECIALTY PAINTS
CROP PROTECTION
CHEMICALS E&P
COSMETICS
TEXTILES
APPAREL
PLAST. & PACKAGE.
FERTILIZERS
FURNITURE
RUBBER
2
PPP for
processing oil
and natural
gas (tolling)
Auction of 1G
products for
new local
projects
Policies to
strengthen the
downstream
chemical chain
20
Both models have pros and cons; the receptivity of

investors should be evaluated before selecting the model
Principal dimensions for

comparative evaluation
1 Auction
O&G
2 Auction
1G Prod.
Ease of implementation (lesser

complexity)
Integration between the refining and the
petrochemicals
Financial viability (lower investor risk)
Added value for the government

Legend:
Greater
Lesser
21
The socioeconomic benefits of the incentives are significant

compared with the reduction in sales value for the govt
SIMULATION
ESTIMATED DIRECT IMPACT

Configuration of
the petrochemical
complex
considered
Inputs
- 200th barrel/day
- 330 kta of de ethane1
- 360 kta de propane1
Refining and 1st gen.

- Refining with PFCC
- Reform
- Cracker light load
2nd
-
Investment
US$20-25B
(direct impact on GDP of ~US$8-10B)
Trade Balance
GDP
(recurring)
Tax Levies
gen.
Styrenics
Polyurethanes
Surfactants
Polyamides
Thermo-plastics
Jobs Created
Discount on
Oil2
US$5-7B / year
As of 2025
US$5,5-6,5B / year
As of 2025
US$1,0-1,3B / year
As of 2025
3-4k
direct
(+ 8-9 k indirect)
US$0,5-1,2B / year
As of 2025
Nota: 1- Ethane and propane load from a potential UPGN with a capacity of 7Mm3/day
2- Scenario with a 50% reduction on import tax for 2nd Gen products
22
Key aspects for implementation of the model

NOT EXHAUSTIVE
SELECTION OF THE MODEL
DETAILING OF THE MODEL
Modeling of the minimum technical

specifications of the projects
Design of the competitive process and

requirements
Macro modeling of the competitive

process
Detailing of the project management

model (roles, responsibilities and
governances)
Design of alternative business and

operational models
Partially addressed in the Study
Proposal for the governance structure

to manage the competitive process, the
contractual, technical and operational
aspects
Legal assessment and mitigation of

eventual regulatory gaps
Design of the financial structure to

enable investment
Governance model for process

management
Design of other enabling incentives (ex.

fiscal incentives)
Preparation of draft contracts
23
Actions and industrial policies need to be implemented to

improve the investment environment
INFRASTRUCTURE
FISCAL
PETROCHEM. FEEDSTOCK
Railway: Prioritization of certain lines

within the PIL and creation of rail
connections
Tax reform: Design and approval a

federal VAT
Roadways: Improvements in access

to ports and private concessions
Approval of tax exemptions for

investments (REPEQUIM), and for
renewable raw materials (REIQInovao)
Maintain tax exemptions for 1st and

2nd generation feedstock
Gradual alignment of fuel policies
(Local vs. international prices)
associated with the national policy on
Petrochem. feedstock
Extraction of ethane/propane from
natural gas
Use of the federal rights to oil and gas
from the Govt share of the pre-salt
reserve to guarantee its availability
and competitiveness
Coastal Navigation: Improve port

efficiency and incentivize competition
Gas Logistics: Improve gas
infrastructure + support UPGNs
REGULATION
Registration of crop protection
chemicals:
- Simplify the registration of simple
modification
- Queue management
- Increase capacity to process requests
- Simplify the exports and the competitive
tax equality of imports
Biodiversity access
Demand Regulation:
- Ex: 2Gen Fuels, biodegradables, standard
for thermal insulation, wind energy, low
consumption/electric cars,, use of
hydrophobics and hydrorepellants in
public works
Renewal of Reintegra and adjustment

of the ICMS tax rates
Improvements in competitive
equality
- Increase flexibility in the List of
Exemptions to the Common External Tariff
INNOVATION AND TECH.
SUGARCANE FEEDSTOCK
Prioritization of technological
challenges
Tax exemption for investments

(REPEQUIM)
Inclusion of chemicals in PNPC

(Knowledge platforms) / Inova
Qumica (Chemical Innovation)
Conditions for competitive financing
Professionalization of NITs to
intermediate negotiations for IR
between companies and universities
Inc. flexibility of law 8666 for ICTs
Reduce the timeline for registering
patents
Adjustments to the Lei do Bem
Tax exemption on bioproducts

(REIQ-Inovao)
Incentives for greenfield projects for

biorefineries and renewable chemicals
- Ex. Semiarid: provision of minimum
logistics and irrigation infrastructure along
with risk sharing with private investors
24
Although there are several initiatives underway, some

investments are less attractive due to high capex
CAPEX IS THE MAIN OBSTACLE TO
INVESTMENT IN INTEGRATED PROD.
THERE ARE OPPORTUNITIES TO

IMPROVE EACH STEP
Total cost of production from n-butanol
Cost indexed to US conventional production =100
Research
and
Development
(R&D)
Pilot
Plant/
Scaling
Production
ACTUAL
PROPOSED
ADDITIONAL
Lei do bem
PNPC
Inova qumica
REIQ-Inovao
Perpetual
participatory
Bonds
PAISS
REPEQUIM
(*) Receivables from the sale of by-products subtracted from the costs of
other raw materials and inputs.
Source: Intratec, Bain /Gas Energy Analysis
25
There are two government initiatives to strengthen

chemicals based on sugarcane
AGRICULTURAL
INPUTS
PRETREATMENT
FERMENTATION
CHEMICAL
PROCESS
Sugarcane juice
Cane straw
Bagasse
Sugar and
ethanol
(1G and 2G)
Alcohols and
Polyols
Acids
Other
Greenfield1 project
Existing infrastructure
Incentives for greenfield

projects in renewable
chemicals bio refineries
- Ex. semiarid: make available
minimum logistic infrastructure
(for production and inputs) and
water collection system2
- PPP: risk sharing with private
investor
AUTOMOTIVE
MACHINES AND
EQUIP.
FOOTWEAR
HOUSEHOLD
APPLIANCES
CIVIL
CONSTRUCTION
SPECIALTY
PAINTS
CROP
PROTECTIO
E&P CHEMICALS
COSMETICS
TEXTILES
APPAREL
PLASTICS AND
PACKAGING
FOOD
ADDITIVES
FURNITURE
RUBBER
Investment
Tax exemption for

investments (REPEQUIM)
Competitive financing
conditions
Tax exemption for

renewable products
(REIQ-Inovao)
(1) Use of sugarcane varieties more adapted to the soil type (ex. cana-energia) could improve projects profitability and sustainability
(2) Examples: PPP for irrigation (PPP Salitre) and Agrovale (sugar and ethanol mill) in Juazeiros, Bahia
26
A Biorefinery creates additional tax levies of R$40SIMULATION

100M/year, in addition to creating up to 2k jobs
1
Configuration of
the biorefineries
considered
Assumptions
Investment in the
project
Trade Balance
- 71th ha planted;
60th ha harvested
- 5Mta of sugar
- n-butanol: 100 kta
GDP
Actual Infra
Tax Levies
- n-butanol (bagasse
and cane straw)
Jobs
- Sugarcane
plantation
- Irrigation2 and
logistics
- Sugar and ethanol
plant
- n-butanol (Bagasse
and straw)
Government
Incentives
Greenfield1
Actual
Infrastructure
Greenfield
Project
R$ 1,4B
R$ 3,9B
Direct impact GDP: R$670M
Direct impact GDP: R$1,8B
R$ 240M/year
R$ 800M/year
As of 2020
As of 2020
R$ 180M/year
R$ 600M/year
As of 2020
As of 2020
R$ 40M/year
R$ 100M/year
As of 2020
As of 2020
100
direct
2 k1
direct
Fiscal Allowances
(REPEQUIM)
R$ 8M/year
R$ 8M/year
Subsidies/Fin.
R$ 13M/year
R$ 37M/year
Incentives PPP
R$ 18M/year
TOTAL
R$ 21M/year
R$ 63M/year
Fiscal Allow.
R$ 15M/year
R$ 15M/year
(REIQ)3
(1) Mechanized planting and harvesting; (2) From a government perspective it is necessary to evaluate different alternatives for the use of water (ex: generation of energy and fruit production) and
their respective socioeconomic impacts; (3) considers additional R&D investment of 4% of the gross annual revenues for the producer of bio n-butanol.
27
In sum, the Study offers a consistent set of initiatives for

further analysis and implementation
STUDY OBJECTIVES
WHAT WE DELIVERED
Dozens of opportunities, based on Brazils
sustainable comparative advantages
Opportunities to diversify
the Brazilian chemical
industry
- Deep dive in 21 chemical segments
Potential investments of US$33 - 47B

Potential improvements of US$22 - 38B on
the trade balance
+ potential of the biomass chemicals
Concrete initiatives organized in 6
dimensions:
Instruments/actions for an
industrial policy for the
sector
Infrastructure
Fiscal
Regulation
Innovation and Technology
Petrochemical feedstock
Renewable feedstock
28
Final Considerations
This study is a result of the efforts of the Consortium, in collaboration
with BNDES and the strong participation of the industry
The proposals presented aim to establish a technical basis for further

analysis and implementation of related initiatives
The success of the study depends on work done in partnership between
the government and private initiatives, coordinated by an integrated
and well-articulated governance and focused on concrete results
The Consortium is grateful for the opportunity, and with a feeling of
accomplishment, hopes the study can serve as a reference for the
sustainable development of the Brazilian Chemical Industry
29

Chamada Publica FEPprospec0311 Relatorio7 Sumario Ingles

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Diversification of the Brazilian Chemical Industry

The Study for the Diversification of the Brazilian Chemical

- Outside of the scope:

Actions / tools for an

The Study took place over 18 months

The Study was documented in Reports which are available

Proposal for the segmentation of the chemical industry (+ annexes)

Chemicals for E&P

Chemicals for concrete

Aromas, flavors and fragrances

Butadiene and derivatives

Cosmetics and personal hygiene

High tenacity polyester

Research about the local competitiveness of the segments

Petrochemical raw materials

Innovation and technology

Sugarcane raw materials

Final Report (Summary)

Initially, the chemical industry was separated into 66

Organic building blocks

Inorganic building blocks

Fine chemicals intermediates

Resin intermediates and additives

Additives and catalysts

PolytetraSpecial High tenacity

Soaps, cleaning pr.

32 segments were selected for detailed analysis

The 19 segments with a primary focus were studied in

Food additives (animals)1

Butadiene and isoprene deriv.2

Aromas, flavors and fragrances

Chemicals for E&P

Aromatics and deriv.3

Food additives (humans)1

Chemicals for mineral processing

Chemicals for leather

Chemicals for concrete

+ Chemicals from renewables

Strategic focus on those segments with relevant local

COMPARATIVE ADVANTAGE BASED ON FEEDSTOCK

Potentially competitive feedstock

Feedstock competitive, but emerging tech

Brazil has the potential to attract investment in diverse

IMPACT OF OPPORTUNITIES ON THE TRADE

Reach 30% of global production (20% consumption;

The opportunities identified have the potential to create an

Note: 1 Primary focus segments

However, some investments would not be competitive

COST OF PRODUCTION TO SERVE THE BRAZILIAN MARKET:

However, some investments would not be competitive

COST OF PRODUCTION TO EXPORT:

Actions and industrial policies need to be implemented to

Railway: Prioritization of certain lines

Tax reform: Design and approval a

Roadways: Improvements in access

Approval of tax exemptions for

Maintain tax exemptions for 1st and

Coastal Navigation: Improve port

Renewal of Reintegra and adjustment

INNOVATION AND TECH.

Tax exemption for investments

Inclusion of chemicals in PNPC

Conditions for competitive financing

Tax exemption on bioproducts