US embassy cable - 05RIODEJANEIRO973

UNCLAS SECTION 01 OF 03 RIO DE JANEIRO 000973 
 
SIPDIS 
 
STATE FOR WHA/BSC, WHA/PDA-LGOULD, DS/ITA and DS/IPA/WHA 
NSC FOR CRONIN 
USDOC FOR 4332/ITA/MAC/OLAC/JANDERSON/ADRISCOLL/MWARD 
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/DDEVITO/DANDERSON/EOL SEN 
STATE PASS OPIC FOR RGREENBURG, DMORONESE 
STATE PASS EXIM FOR NATALIE WEISS, COCONNER 
AID/W FOR LAC/SA 
 
E.O. 12958: N/A 
TAGS: EAIR, EMIN, ENRG, EFIN, ECON, BR, Economic Policy & General Analysis 
SUBJECT:  Rio Pol/Econ Roundup  July 2005 - I 
 
 
SUMMARY 
------- 
 
--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 
e 
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 
ng 
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 
a 
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). 
 
ATKINS 
S