Brazil: Transpetro – Contracts for Purchase and Sale of 22 Oil Tankers Suspended

Transpetro confirmed that it has suspended the execution of the Contracts for Purchase and Sale of 22 oil tankers ordered from the Atlântico Sul Shipyard (EAS) under the Company Fleet Modernization and Expansion Program (Promef).

The contracts will remain suspended until August 30th 2012, in which time the EAS will have to prove compliance with the following conditions:

• a technical partnership with proven experience in shipbuilding;
• an action plan and reliable schedule for shipbuilding;
• an engineering project for ships that complies with the contractual technical specifications.

If at the end of this period the EAS does not comply with these requirements, the Contracts for Purchase and Sale of the ships may be rescinded, and fines applied in accordance with the contracts. During the suspensions period, no resources will be contributed in the construction of the ships. Transpetro will not be responsible for the costs incurred by the Shipyard as a result of the suspension.

Besides the João Cândido, already delivered by the EAS, the five Contracts for Purchase and Sale of the subsequent vessels, which count on the technical assistance of Samsung, will not be suspended.

The Transpetro Fleet Modernization and Expansion Program was elaborated based on three premises: to build ships in Brazil, to have a minimum index for national content of 65%, and to achieve international competitiveness after the learning curve. With the fulfillment of the first two premises, the program has already contributed to bringing the naval industry out of inactivity.

After decades of crisis, Brazil now has the fouth largest portfolio of orders for ships worldwide. Three new shipyards are being established to attend the program – EAS, already in operation, and STX-Promar Shipyard in Pernambuco and Rio Tietê Sipyard in São Paulo, under construction. Two ships, Celso Furtado and João Cândido, are already in operation. The Brazilian shipyards, which employed less than 2 thousand people at the turn of the century, now have more than 60 thousand workers.

The third premise of the Promef, to seek international competitiveness, is the next focus of the program. To achieve this objective, Transpetro is creating the Production Monitoring Sector (SAP), which will have the function of showing ways for the shipyards to improve their levels of productivity through the monitoring and auditing of all stages of the ship assembly line.

Up to now, the Company inspectors have been focusing on aspects of quality, deadlines and payments for each ship. The SAP will have the objective of monitoring the process in a broader manner, pointing out bottlenecks and solutions for the construction periods in Brazil to be progressively reduced, as foreseen in the Promef contracts.

Transpetro believes that the Brazilian naval industry has all of the conditions to reach international levels of productivity, producing ships at competitive prices and deadlines, and generating jobs and income for thousands of Brazilians.