International

Brazil, China Sign Power-Grid, Plane Deals

Embraer to Sell 60 Airplanes With a Total List Price of $3.2 Billion

The Wall Street Journal
18/07/2014 14:08
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China and Brazil signed a number of deals on Thursday, ranging from jet sales to power-grid investments, at the end of a summit meant to showcase a bigger global role for emerging economies.

 

The agreements come as Chinese President Xi Jinping wraps up a visit to Brazil for a meeting of the Brics nations, comprising Brazil, Russia, India, China and South Africa. With China's growing influence in Latin America, Mr. Xi's presence far outweighed that of the other visiting leaders, most of whom left earlier in the week.

 

In one of the deals, Brazilian plane maker Embraer SA EMBR3.BR +1.15% clinched an order to sell 60 regional airplanes to Chinese companies, totaling $3.2 billion at list price. The agreement marks a major advance in Embraer's China business—a market it has been cultivating for years.

 

Not too long ago, Brazil and China had virtually no trade between them. But in the last decade, China has become Brazil's biggest trading partner, buying up Brazilian iron ore, soy and other raw materials to feed its fast economic growth. Brazil has sought to sell more value-added products to China, such as jets, in a bid to revive its own growth that has slumped amid a manufacturing slowdown.

 

Brazil and China also signed a major power deal, under which State Grid Corp. of China will team with Brazilian state company Eletrobras to build high-power-transmission lines to connect a giant dam being built in the Amazon to Brazil's electricity grid.

 

The deal boosts State Grid's presence in Latin America's largest country. In 2010, the company made a $1 billion investment to purchase seven small Brazilian power-transmission companies in Brazil's southeast. It also represents a significant expansion of China's role in a high-profile power-generation endeavor that carries significant political stakes for Brazil's government.

 

State Grid will help connect the Belo Monte dam in Brazil's Amazon, a $16-billion project to build the world's third-largest hydroelectric dam by potential output.

 

Belo Monte has become a flash point in a controversy involving Indian rights and environmental advocates, who say the dam will damage the way of life of local tribes as well as adversely impact local wildlife. Brazilian officials, however, say the dam has been designed to limit these impacts. Because of the controversy, any mishaps with the completion of the project would come under intense scrutiny and potentially create a political fallout for the Rousseff administration.

 

The project will use a so-called ultrahigh-voltage transmission system that is increasingly used in China where power is often carried over long distances, as is the case with Brazilian dam projects in the Amazon.

 

Brazil's state-run BNDES development bank is funding the construction of Belo Monte. On Thursday, its President Luciano Coutinho signed joint financing deals with the China Development Bank and other Chinese institutions that would allow BNDES to help finance Chinese participation in infrastructure and other projects.

 

Under the aircraft deal, Embraer signed contracts to sell planes of its E-Jet family or regional jets. Tianjin Airlines, a unit of Hainan Airlines Co. 600221.SH -0.58% Ltd., ordered 20 E-190 and 20 E-190E-2 planes, while Industrial and Commercial Bank of China 601398.SH 0.00% ordered 20 E-190s.

 

Embraer said that Tianjin will be the first airline to fly the E-190E-2 in China. The first planes will be delivered in 2015, Embraer said.

 

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