Equities Research

G etti ng t o Kn o w Brazil

Brazil
Strategy
Sector Note

Getting to Know Brazil 25 February 2010

#2 – The electoral conundrum

Brazil holds major elections in 2010 Carlos Sequeira, CFA
Analyst
2010 is a major election year in Brazil. The country’s population of 190 million
carlos.sequeira@btgpactual.com
inhabitants (more than 130 million voters) will elect a new president, 27 state +55 21 3262 9223
governors, 513 representatives of the Lower House, 54 senators and regional
congressmen across the nation. This is clearly a significant event for the country, Antonio Junqueira

and may cause some market volatility due to its potential impacts on the micro Analyst
antonio.junqueira@btgpactual.com
agenda (which we see as large) and the macro agenda (small).
+55 21 3262 9278
The electoral process helps slow structural changes in the country
Brazil holds elections every two years. National and state elections are followed
and preceded by municipal elections. The small interval between elections
affects Congress’ efficiency in the second semester every two years. This
obviously impacts Brazil’s ability to make progress in key structural changes (the
so-called reforms), such as tax or public pension reforms. While we could be
tempted to think that municipal elections have low influence in Congress, the
opposite has proven to be the case.

Electoral rules lead to poor-quality voting and a distant Congress

Voting in Brazil is mandatory. At the same time, most Brazilian voters have too
little information, time, knowledge or motivation to take well-based voting
decisions. According to a poll, a remarkable 74% of Brazilians don’t even
remember who they voted for in the Lower House elections only four years
before the poll was taken. Another poll shows that 13% of Brazilian voters
admitted having switched votes in return for some personal benefit.

Pardon Montesquieu, but the powers are not balanced in Brazil

Despite enjoying really strong macroeconomic momentum, Brazil could
potentially grow faster if some key legal reforms are carried out. We don’t expect
this to happen in the next presidential term unless the government, which in
practical terms is much more powerful than Congress, decides to push these
reforms. We also don’t foresee a change in the balance of power anytime soon.

ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 9

BTG Pactual does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the
objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
 Getting to Know Brazil
25 February 2010 page 2

Electoral process slows structural changes

We will debate our view on Brazil’s presidential candidates and their agendas in
the near future. This piece’s focus, though, is broader as we aim to shed light on
Brazil’s electoral process and explain its impacts on Brazil’s legislative process
and the country’s slow pace of structural changes.

Some of the key reforms that Brazilian politicians have been clamoring to
approve for years have simply failed to get off the ground. Politically, the
changes are so tough to implement nowadays that debates such as the pension,
tax or political reforms are not even on Congress’ agenda this year.

In our view, the electoral process plays a key role in the speed of changes in
Brazil. The small interval between elections, mandatory voting, and the rules
determining who is elected to Congress are some of the reasons for poor-quality
voting and legislative agendas, in our view.

Figure 1: The 8-year electoral cycle in Brazil

Source: BTG Pactual

 Getting to Know Brazil
25 February 2010 page 3

The electoral cycle – mind the gap

Brazil holds elections every two years. National and state elections, which will
happen this year, are followed and preceded by municipal elections (the next
ones are in 2012). As senators have an eight-year term (compared to Lower
House members’ four-year term), the Senate elects 2/3 of its members in one
election (2010’s case) and the other 1/3 four years later (see figure 1 above).

In our view, the small 2-year gap between elections in Brazil explains part of
Brazil’s sloth in passing key legislative reforms (those with the potential to make
the country grow faster and healthier). Municipal elections, though considered
less relevant than major elections, also affect all parties and many congressmen
intending to become mayors of their hometowns.

The reality is that, due to the way politics works in Brazil, any politician wanting
to fly high knows that his/her chances are higher if they work for the government
instead of Congress. Being a mayor of one of Brazil’s key cities can leverage a
politician to become a state governor immediately after. In 2008’s election,
roughly 20% of Lower House members tried to become mayors of their
hometowns. And the vast majority of the remaining 80%, despite not trying to be
elected, worked towards electing its political allies in order to strengthen its
political groups and/or parties.

That said, every two years, in the second semester, Brazil’s attentions switch
from its legislative to its electoral process, reducing the scope for more important
(and discussed) changes. This is the reality this year. Even micro reforms, such
as the approval of draft bill #29 (which will allow incumbents such as Telemar
and Telesp to offer cable TV services), or the new proposed Oil Law, which will
change the current regulatory scope in Brazil’s pre-salt (affecting Petrobras and
OGX, only to mention Brazilian listed oil companies), may not be passed in an
electoral year (unless there is a big push by the government).

The electoral process – poor-quality voters and a distant Congress

Brazil’s electoral process has some factors that lead to both poor-quality voters
and a distant Congress. First of all, voting in Brazil is mandatory. And the
consequence in terms of voting quality is crystal clear – according to a Datafolha
poll in October 2008, 13% of all voters admitted having switched votes in
exchange for personal benefits (mostly cash). If 13% admitted to this, how many
other voters did the same but were afraid to admit to as much in the Datafolha
interview?

Also, the mandatory voting process forces many people who don’t follow politics,
have no interest and no information to make a decision they would rather not
take. According to another poll, published in the book “Reforma Política – Lições
da História Recente”, published by FGV and written by Alberto Carlos Almeida,
74% of voters couldn’t even recall who they voted for in Brazil’s Lower House
elections four years prior to the year the poll was taken. Poor-quality voters
obviously lead to a poor-quality Congress.
 Getting to Know Brazil
25 February 2010 page 4

State representation in Congress

Another weak point in Brazil’s electoral process is that there is a floor and a
ceiling of Lower House members per state – the floor is 8 members per state,
while the ceiling is 70 members. There is one Lower House seat for each
358,000 people in the country, but the floor and ceiling distort the number across
the states, making voters of some regions much more powerful than others’.

In the state of Roraima, for example, there is one Lower House seat for each
49,000 people, while in Amapá there is one seat for each 73,000. On the
opposite side, in São Paulo, there is one member for each 568,000 people.

Table 1: Lower House representation in Brazil

State Lower house members (Lhm) Pop / Lhm % Pop % Lower house % Senate % Congress

North
Acre 8 81,923 0.4% 1.6% 3.7% 2.6%
Amazonas 8 402,743 1.8% 1.6% 3.7% 2.6%
Amapá 8 73,414 0.3% 1.6% 3.7% 2.6%
Pará 17 417,081 3.9% 3.3% 3.7% 3.5%
Rondônia 8 181,720 0.8% 1.6% 3.7% 2.6%
Roraima 8 49,466 0.2% 1.6% 3.7% 2.6%
Tocantins 8 155,453 0.7% 1.6% 3.7% 2.6%
Total 65 225,356 8.0% 12.7% 25.9% 19.3%

Northeast
Alagoas 9 337,470 1.7% 1.8% 3.7% 2.7%
Bahia 39 361,043 7.7% 7.6% 3.7% 5.7%
Ceará 22 372,057 4.4% 4.3% 3.7% 4.0%
Maranhão 18 339,944 3.3% 3.5% 3.7% 3.6%
Paraíba 12 303,450 2.0% 2.3% 3.7% 3.0%
Pernambuco 25 339,466 4.6% 4.9% 3.7% 4.3%
Piauí 10 303,244 1.6% 1.9% 3.7% 2.8%
Rio Grande do Norte 8 376,718 1.6% 1.6% 3.7% 2.6%
Sergipe 8 242,428 1.1% 1.6% 3.7% 2.6%
Total 151 341,297 28.0% 29.4% 33.3% 31.4%

Midwest
Distrito Federal 8 306,988 1.3% 1.6% 3.7% 2.6%
Goiás 17 332,179 3.1% 3.3% 3.7% 3.5%
Mato Grosso do Sul 8 283,227 1.2% 1.6% 3.7% 2.6%
Mato Grosso 8 356,830 1.6% 1.6% 3.7% 2.6%
Total 41 322,522 7.2% 8.0% 14.8% 11.4%

Southeast
Espírito Santo 10 335,167 1.8% 1.9% 3.7% 2.8%
Minas Gerais 53 363,652 10.5% 10.3% 3.7% 7.0%
Rio de Janeiro 46 335,227 8.4% 9.0% 3.7% 6.3%
São Paulo 70 568,967 21.6% 13.6% 3.7% 8.7%
Total 179 435,047 42.3% 34.9% 14.8% 24.9%

South
Paraná 30 342,817 5.6% 5.8% 3.7% 4.8%
Rio Grande do Sul 31 341,383 5.8% 6.0% 3.7% 4.9%
Santa Catarina 16 366,655 3.2% 3.1% 3.7% 3.4%
Total 77 347,193 14.5% 15.0% 11.1% 13.1%

Country 513 358,703 100% 100% 100% 100%

Source: IBGE, Lower House’s website and BTG Pactual. % of Congress is the average of % of Lower House and % of Senate.
 Getting to Know Brazil
25 February 2010 page 5

A rough calculation shows that each Roraima voter is 11 times more powerful
than a São Paulo voter in terms of determining the composition of Brazil’s Lower
House. The floor and ceiling levels, by trying to strengthen states in the Lower
House, approximates the Lower House concept to the Senate’s. And the
consequence of that is a Congress that doesn’t reflect the country’s
proportionality.

Considering both the Lower House and the Senate, the Northern region of Brazil,
for example, accounts for 19% of Congress, despite having only 8% of the
population. That’s an impressive 11% gap. The rich and dense Southeast region,
home to Rio and São Paulo, have 42.3% of Brazil’s population, but only 34.9% of
the Lower House and 25% of Congress.

Should voters choose parties or candidates?

In 2006, Brazil elected the current 513 Lower House members. At the time they
took office, these members came from 20 different parties. The biggest party
(PMDB) elected only 17.5% of the members, while the top 4 (PMDB, PT, PSDB
and DEM) elected 58%. Members of liberal, social, communist, republican and
workers’ parties, as well as many other fronts, gained seats in Congress.

With so many different political ideologies decently represented in Congress, one

could think that Brazil’s population has a well (and quasi-equally) diversified
political thinking. However, that’s not true. Although Brazil does have many
ideologies, the reality is that parties don’t follow a strict agenda, and share the
same views on many subjects.

That said, Brazil’s electoral law aims to strengthen the parties, and not the
candidates. Let’s take São Paulo as an example. The state has 70 Lower House
seats, but the 70 elected members weren’t the 70 that got more votes. In 2006,
th th
the 70 most voted candidate didn’t get in, while the 226 did. In the 2002
th
elections, the discrepancy was even larger. The 634 most voted candidate, who
got only 275 votes, was elected to Congress, while more than 560 candidates
who obtained more votes couldn’t get a seat.

But how does that happen? Rules in Brazil imply that for all the Legislative seats
in the country (except the Senate), the votes go to the parties (or coalition of
parties) instead of the candidates. In São Paulo, for example, where each
568,000 people (roughly 388,000 voters) elect one Lower House member, if one
party gets 776k votes, it is entitled to two seats (776/2 = 388). It doesn’t matter if
one of the candidates gets 775,000 votes and another one gets only 1,000 – the
party will still have two seats in the Lower House.

Although we agree with some measures that aim to strengthen parties in the
country, such as removing a politician from his/her seat when he/she decides to
change party in a specific timeframe after the elections, the above concept,
combined with the fact that Brazil has more than 20 parties, creates all types of
political distortions – the main distortion is the one mentioned above. In 2002,
th
each vote that the 634 most voted candidate obtained held much more sway
than those of each and every candidate who obtained more votes.
 Getting to Know Brazil
25 February 2010 page 6

Pardon Montesquieu, but the powers are not balanced in Brazil

The Legislative is not a strong governmental force in Brazil. There are some
reasons for this, such as education and how misconduct is punished. The
electoral process, in our view, also plays a key role. The Legislative would be
stronger, we think, if the electoral process changes in a way to face the
challenges discussed in the note.

A stronger Congress would probably be able to handle more interesting agendas

and help push growth. Today most relevant changes are normally proposed and
pushed by the Executive. In other words, the country is dependent on the
government to propose an agenda with the potential to speed up Brazil’s growth.
 Getting to Know Brazil
Telemar HoldCo. PN 25 February 2010 page 7

Tel emar HoldCo. PN

Income Statement (R$m) 12/2004 12/2005 12/2006 12/2007 12/2008 12/2009E 12/2010E 12/2011E
Revenue 15,839 16,748 16,872 17,585 18,736 29,920 30,941 31,585
Operating expenses (ex depn) (9,182) (9,982) (10,770) (11,084) (12,663) (20,733) (21,035) (21,120)
EBITDA (BTG Pactual) 6,656 6,766 6,102 6,501 6,072 9,396 10,746 11,305
Depreciation (3,502) (3,351) (3,147) (2,605) (2,809) (5,592) (5,530) (5,258)
Operating income (EBIT, BTG Pactual) 3,154 3,415 2,955 3,895 3,264 3,595 4,376 5,207
Other income & associates (18) 16 147 251 (4) 26 0 0
Net Interest (1,641) (1,615) (1,290) (424) (1,379) (2,188) (2,297) (2,355)
Abnormal items (pre-text) 0 0 0 0 0 0 0 0
Profit before tax 1,495 1,816 1,811 3,722 1,881 1,433 2,079 2,852
Tax (575) (371) (210) (877) (552) (745) (707) (970)
Profit after tax 920 1,445 1,601 2,845 1,329 687 1,372 1,882
Abnormal items (post-tax) 0 0 0 0 0 0 0 0
Minorities / pref dividends (172) (329) (292) (487) (271) (562) (433) (641)
Net Income (local GAAP) 747 1,115 1,310 2,358 1,058 125 939 1,242
Net Income (BTG Pactual) 747 1,115 1,310 2,358 1,058 125 939 1,242
Tax rate (%) 38 20 12 24 29 52 34 34
Per Share 12/2004 12/2005 12/2006 12/2007 12/2008 12/2009E 12/2010E 12/2011E
EPS (local GAAP) 1.97 2.92 3.43 6.17 2.77 0.33 2.46 3.25
EPS (BTG Pactual) 1.97 2.92 3.43 6.17 2.77 0.33 2.46 3.25
Net DPS 2.11 2.88 5.04 0.86 6.74 2.80 1.87 1.86
BVPS 20.94 20.99 23.56 28.05 25.10 22.36 22.95 24.33
Cash Flow (R$m) 12/2004 12/2005 12/2006 12/2007 12/2008 12/2009E 12/2010E 12/2011E
Net Income 747 1,115 1,310 2,358 1,058 125 939 1,242
Depreciation 3,502 3,351 3,147 2,605 2,809 5,802 6,370 6,098
Net change in working capital 82 (316) 21 352 (1,989) (164) 38 (13)
Other (operating) 0 0 0 0 0 0 0 0
Net cash from operations 4,332 4,150 4,478 5,316 1,878 5,762 7,347 7,327
Cash from investing activities (1,995) (2,398) (2,307) (2,329) (8,077) (5,442) (4,255) (4,422)
Cash from financing activities (946) (3,260) (2,211) (510) 8,576 6,940 (715) (712)
Bal sheet chge in cash & equivalents 1,147 (1,701) 916 2,003 2,808 (2,386) 2,810 2,833
Balance Sheet (R$m) 12/2004 12/2005 12/2006 12/2007 12/2008 12/2009E 12/2010E 12/2011E
Cash and equivalents 5,472 3,771 4,687 6,690 9,498 7,112 9,922 12,755
Other current assets 5,640 6,067 5,687 6,034 8,036 11,290 11,485 11,657
Total current assets 11,112 9,838 10,374 12,724 17,534 18,403 21,407 24,412
Net tangible fixed assets 14,810 13,812 13,042 12,982 15,428 22,464 21,189 20,353
Net intangible fixed assets 0 0 0 0 0 11,176 10,336 9,496
Investments / other assets 3,390 3,614 4,374 4,547 8,103 8,418 8,418 8,418
Total assets 29,312 27,264 27,790 30,253 41,065 60,460 61,350 62,678
Trade payables & other ST liabilities 4,930 4,667 3,794 4,856 5,474 9,455 9,688 9,846
Short term debt 3,059 4,052 2,092 2,036 4,047 9,856 9,856 9,856
Total current liabilities 7,989 8,719 5,886 6,892 9,521 19,311 19,544 19,702
Long term debt 8,955 5,802 7,478 7,354 16,495 18,696 18,696 18,696
Other long term liabilities 2,545 2,819 3,311 2,852 3,638 6,062 6,062 6,062
Total liabilities 19,489 17,340 16,675 17,098 29,654 44,069 44,302 44,460
Equity & minority interests 9,823 9,924 11,115 13,155 11,411 16,391 17,048 18,218
Total liabilities & equities 29,312 27,264 27,790 30,253 41,065 60,460 61,350 62,678

Company Profile: Financial ratios 12/2007 12/2008 12/2009E 12/2010E 12/2011E

EBITDA / revenue 0.4x 0.3x 0.3x 0.3x 0.4x
Net profit / EBITDA 0.1x 0.1x 0.0x 0.0x 0.0x
Telemar Norte Leste is the incumbent telecom
company in all states of Brazil but São Paulo. In EBITDA / net interest 15.3x 4.4x 4.3x 4.7x 4.8x
January 2009, the company acquired Brasil Net debt / EBITDA 0.4x 1.8x 2.3x 1.7x 1.4x
Telecom and became the largest fixed-line Net debt / (net debt + equity) 0.2x 0.5x 0.6x 0.5x 0.5x
operator in the country, with 21 million users.
Source: Company reports and BTG Pactual estimates. Valuations: based on the last share price of that
Telemar Norte Leste's parent holding company,
year(E) based on share price as of 22 February 2010
Tele Norte Leste, owns a 62% stake and trades
separately under ADR ticker TNE.
 Getting to Know Brazil
Petrobras 25 February 2010 page 8

Pe tro bras

Income Statement (US$m) 12/2004 12/2005 12/2006 12/2007 12/2008 12/2009E 12/2010E 12/2011E
Revenue 37,452 56,324 72,347 87,735 118,257 88,502 95,690 100,046
Operating expenses (ex depn) (24,389) (36,448) (47,813) (60,750) (86,194) (58,967) (65,991) (68,254)
EBITDA (BTG Pactual) 13,063 19,876 24,534 26,985 32,063 29,535 29,699 31,792
Depreciation (2,481) (2,926) (3,673) (5,544) (5,928) (6,282) (7,090) (7,317)
Operating income (EBIT, BTG Pactual) 10,582 16,950 20,861 21,441 26,135 23,253 22,609 24,475
Other income & associates (1,275) (2,127) (1,600) (1,560) (1,520) (811) (1,386) (1,412)
Net Interest (372) (231) (100) (582) 2,377 (474) (56) (134)
Abnormal items (pre-text) 0 0 0 0 0 0 0 0
Profit before tax 8,935 14,592 19,161 19,299 26,992 21,968 21,166 22,930
Tax (2,231) (4,441) (5,691) (5,888) (9,259) (5,397) (5,754) (6,394)
Profit after tax 6,704 10,151 13,470 13,411 17,733 16,571 15,412 16,535
Abnormal items (post-tax) 0 0 0 0 0 0 0 0
Minorities / pref dividends (514) 35 (644) (273) 1,146 (1,221) (200) (200)
Net Income (local GAAP) 6,190 10,186 12,826 13,138 18,879 15,350 15,212 16,335
Net Income (BTG Pactual) 6,190 10,186 12,826 13,138 18,879 15,350 15,212 16,335
Tax rate (%) 25 30 30 31 34 25 27 28
Per Share 12/2004 12/2005 12/2006 12/2007 12/2008 12/2009E 12/2010E 12/2011E
EPS (local GAAP) 1.41 2.32 2.92 2.99 4.30 3.50 3.47 3.72
EPS (BTG Pactual) 1.41 2.32 2.92 2.99 4.30 3.50 3.47 3.72
Net DPS 0.41 0.69 0.84 0.81 0.68 0.96 0.94 1.00
BVPS 5.13 7.50 10.10 14.86 14.11 20.76 22.71 24.80
Cash Flow (US$m) 12/2004 12/2005 12/2006 12/2007 12/2008 12/2009E 12/2010E 12/2011E
Net Income 6,190 10,186 12,826 13,138 18,879 15,350 15,212 16,335
Depreciation 2,481 2,926 3,673 5,544 5,928 6,282 7,090 7,317
Net change in working capital (368) (2,076) 716 (491) 1,577 (1,827) (161) (578)
Other (operating) 0 0 0 0 0 0 0 0
Net cash from operations 8,833 15,115 21,077 22,664 28,220 21,077 24,467 25,587
Cash from investing activities (8,445) (10,213) (14,750) (24,169) (29,466) (28,149) (26,292) (27,143)
Cash from financing activities (1,876) (1,887) (3,510) (4,196) 758 926 5,824 2,275
Bal sheet chge in cash & equivalents (2,393) 2,899 2,672 (3,730) (1,037) (5,607) 3,999 720
Balance Sheet (US$m) 12/2004 12/2005 12/2006 12/2007 12/2008 12/2009E 12/2010E 12/2011E
Cash and equivalents 7,557 10,456 13,128 9,398 8,361 2,754 6,753 7,473
Other current assets 11,857 14,978 17,268 21,388 19,635 26,948 26,741 27,958
Total current assets 19,414 25,434 30,396 30,786 27,996 29,703 33,494 35,431
Net tangible fixed assets 37,020 45,920 58,897 84,523 84,719 126,641 140,685 154,960
Net intangible fixed assets 0 0 0 0 0 0 0 0
Investments / other assets 6,648 7,271 9,387 14,406 12,980 18,298 17,786 17,288
Total assets 63,082 78,625 98,680 129,715 125,695 174,642 191,965 207,679
Trade payables & other ST liabilities 9,015 12,626 15,496 18,919 18,303 22,129 21,917 23,004
Short term debt 3,529 5,251 6,059 4,889 5,961 6,068 6,068 6,068
Total current liabilities 12,544 17,877 21,555 23,808 24,264 28,197 27,985 29,072
Long term debt 19,459 16,147 15,526 17,245 21,390 30,638 40,145 46,072
Other long term liabilities 7,696 10,610 15,334 21,151 17,473 22,662 22,028 21,411
Total liabilities 39,699 44,634 52,415 62,204 63,127 81,498 90,158 96,555
Equity & minority interests 23,383 33,991 46,265 67,511 62,568 93,144 101,807 111,124
Total liabilities & equities 63,082 78,625 98,680 129,715 125,695 174,642 191,965 207,679

Company Profile: Financial ratios 12/2007 12/2008 12/2009E 12/2010E 12/2011E

EBITDA / revenue 0.3x 0.3x 0.3x 0.3x 0.3x
Net profit / EBITDA 0.1x 0.2x 0.2x 0.2x 0.2x
Petrobras is a mixed-capital corporation that
began operations in Brazil in 1954, and it is EBITDA / net interest 46.4x -13.5x 62.3x 528.4x 237.9x
linked to Brazil's Ministry of Mines and Energy. Net debt / EBITDA 0.5x 0.6x 1.1x 1.3x 1.4x
Petrobras is the largest publicly traded oil Net debt / (net debt + equity) 0.2x 0.2x 0.3x 0.3x 0.3x
company in Latin America. It operates in the
Source: Company reports and BTG Pactual estimates. Valuations: based on the last share price of that
exploration, development, production, refining,
year(E) based on share price as of 22 February 2010
processing, trading, and transportation of crude
oil, oil products, natural gas, and other fluid
hydrocarbons.
 Getting to Know Brazil
25 February 2010 page 9

Required Disclosures

This report has been prepared by Banco BTG Pactual S.A. The figures contained in performance charts refer to the past;
past performance is not a reliable indicator of future results. Additional information will be made available upon request.

BTG Pactual Definition Coverage *1 IB Services *2

Rating
Buy Expected total return 10% above the company’s 49% 73%
sector average.
Neutral Expected total return between +10% and -10% 43% 53%
the company’s sector average.
Sell Expected total return 10% below the company’s 8% 50%
sector average.

1: Percentage of companies under coverage globally within the 12-month rating category.
2: Percentage of companies within the 12-month rating category for which investment banking (IB) services were
provided within the past 12 months.
Absolute return requirements
Besides the abovementioned relative return requirements, the listed absolute return requirements must be followed:
a) a Buy rated stock must have an expected total return above 15%
b) a Neutral rated stock can not have an expected total return below -5%
c) a stock with expected total return above 50% must be rated Buy

Analyst Certification

Each research analyst primarily responsible for the content of this investment research report, in whole or in part, hereby
certifies that:
- all of the views expressed accurately reflect his or her personal views about those securities or issuers, and such
recommendations were elaborated independently, including in relation to Banco BTG Pactual S.A. and/or its affiliates, as
the case may be;

- no part of his or her compensation was, is, or will be, directly or indirectly, related to the any specific recommendations
or or views contained herein or linked to the pricing of any of the securities discussed herein.
Research analysts contributing to this report who are employed by a non-US Broker dealer are not registered/qualified as
research analysts with the NASD and NYSE and therefore are not subject to the restrictions contained in the NASD and
NYSE rules on communications with a subject company, public appearances, and trading securities held by a research
analyst account.

Other Disclaimers

Brazilian Regulation CVM 388

Each research analyst primarily responsible for the content of this investment research report, in
whole or in part, certifies that:
- all of the views expressed accurately reflect his or her personal views about those securities or
issuers, and such recommendations were elaborated independently, including in relation to Banco BTG Pactual S.A., as
the case may be;
- no relationship is maintained with any person who works for the subject companies which securities are mentioned on
this research;
- Banco BTG Pactual S.A. and/or its affiliates (including the funds, portfolios and investment clubs in securities managed
by them) do not own directly or indirectly 1% or more of the total capital of the subject company(ies) NET Serviços SA,
OGX Petroleo e Gas Participacoes S/A, Petroleo Brasileiro - Petrobras, Tele Norte Leste Participações SA PN, Telesp
Fixed;
- does not hold, directly or indirectly securities of the subject companies which represent 5% or more of his or her net
worth, and is not involved in the acquisition, alienation or intermediation of such securities in the market;
- does not receive compensation for any services rendered or presents any commercial relationships with any of the
subject companies or person, entity or any kind of funds which represents the same interest of the subject companies;
- no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the pricing of any
of the securities issued by any of the subject companies and/or to the specific recommendations or views expressed by
the research analyst in this research although part of the analyst's compensation comes from the profits of Banco BTG
Pactual S.A. and/or its affiliates and, consequently, revenues arisen from transactions held by Banco BTG Pactual S.A.
and/or its affiliates
- Banco BTG Pactual S.A. and/or its affiliates receive compensation for any services rendered or presents any
commercial relationships with the subject company(ies) NET Serviços SA, OGX Petroleo e Gas Participacoes S/A,
Petroleo Brasileiro - Petrobras, Telesp Fixed or person, entity or any kind of funds which represents the same interest of
subject company(ies);
- Banco BTG Pactual S.A. and/or its affiliates does not receive compensation for any services rendered or presents any
commercial relationships with the subject company(ies) Tele Norte Leste Participações SA PN or person, entity or any
kind of funds which represents the same interest of subject company(ies);
- Banco BTG Pactual S.A. and/or its affiliates are not involved in the acquisition, alienation or intermediation of the
securities of the subject company(ies) NET Serviços SA, OGX Petroleo e Gas Participacoes S/A, Petroleo Brasileiro -
Petrobras, Tele Norte Leste Participações SA PN, Telesp Fixed in the market;

Statement of Risk
 Getting to Know Brazil
25 February 2010 page 10

We believe the key risks are additional competition and regulatory issues. In addition, there are potential risks inherent in
investing in emerging market countries. Potential emerging market related risks include, but are not limited to, the volatile
nature of the currency, regulatory and sociopolitical risk, and abrupt potential changes in the cost of capital and economic
growth outlook. Valuations can also be affected by "contagion" from developments in other emerging markets.

Company Disclosures

Company Name Reuters 12-mo rating Price Price date

Telemar HoldCo. PN TNLP4.SA Buy R$31.17 23-2-2010
Telesp Fixed 1, 2, 3, 4 TLPP4.SA Neutral R$39.89 23-2-2010
NET 1, 2, 3, 4 NETC4.SA Neutral R$21.28 23-2-2010
Petrobras 1, 2, 3, 4 PBRa.N Buy US$37.45 23-2-2010
OGX 1, 2, 3, 4 OGXP3 Buy R$16.40 23-2-2010

1. Within the past 12 months, Banco BTG Pactual S.A., its affiliates or subsidiaries has received compensation for
investment banking services from this company/entity.
2. Banco BTG Pactual S.A, its affiliates or subsidiaries expect to receive or intend to seek compensation for investment
banking services and/or products and services other than investment services from this company/entity within the next
three months.
3. Within the past 12 months, Banco BTG Pactual S.A has received compensation for products and services other than
investment banking services from this company/entity.
4. This company/entity is, or within the past 12 months has been, a client of Banco BTG Pactual S.A., and investment
banking services are being, or have been, provided.

Telemar HoldCo. PN
Stock Price (R$) Price Target (R$)
60.0

40.0

20.0

0.0
25-Feb-07

25-Aug-07

25-Feb-08

25-Aug-08

25-Feb-09

25-Aug-09

25-Feb-10
25-May-07

25-Nov-07

25-May-08

25-Nov-08

25-May-09

25-Nov-09

Buy
Neutral
Sell
NoRating

Source: BTG Pactual and Economatica. Prices as of 23 February 2010

Telesp Fixed
Stock Price (R$) Price Target (R$)
80.0

60.0

40.0

20.0

0.0
25-Feb-07

25-Aug-07

25-Feb-08

25-Aug-08

25-Feb-09

25-Aug-09

25-Feb-10
25-May-07

25-Nov-07

25-May-08

25-Nov-08

25-May-09

25-Nov-09

Buy
Neutral
Sell
NoRating

Source: BTG Pactual and Economatica. Prices as of 23 February 2010

 Getting to Know Brazil
25 February 2010 page 11

NET
Stock Price (R$) Price Target (R$)
50.0

40.0

30.0

20.0

10.0

0.0
25-Feb-07

25-Aug-07

25-Feb-08

25-Aug-08

25-Feb-09

25-Aug-09

25-Feb-10
25-May-07

25-Nov-07

25-May-08

25-Nov-08

25-May-09

25-Nov-09
Buy
Neutral
Sell
NoRating

Source: BTG Pactual and Economatica. Prices as of 23 February 2010

Petrobras
Stock Price (US$) Price Target (US$)
80.0

60.0

40.0

20.0

0.0
25-Feb-07

25-Aug-07

25-Feb-08

25-Aug-08

25-Feb-09

25-Aug-09

25-Feb-10
25-May-07

25-Nov-07

25-May-08

25-Nov-08

25-May-09

25-Nov-09

Buy
Neutral
Sell
NoRating

Source: BTG Pactual and Economatica. Prices as of 23 February 2010

OGX
Stock Price (R$) Price Target (R$)
30.0

20.0

10.0

0.0
25-Feb-07

25-Aug-07

25-Feb-08

25-Aug-08

25-Feb-09

25-Aug-09

25-Feb-10
25-May-07

25-Nov-07

25-May-08

25-Nov-08

25-May-09

25-Nov-09

Buy
Neutral
Sell
NoRating

Source: BTG Pactual and Economatica. Prices as of 23 February 2010

 Getting to Know Brazil
25 February 2010 page 12

Global Disclaimer

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 Getting to Know Brazil
25 February 2010 page 13

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