Petrobras (PBR)

(i) Merchant Thermoelectric Plants

PETROBRAS understands that the economic and financial equitability of the agreements involving Macaé Merchant power plants has been seriously impacted, considering that, under the related contractual conditions, these contributions should be made occasionally rather than permanently and regularly, which has been the case as a result of a structural change in the market, thereby being excessively costly to the Company.

Negotiations are being conducted with El Paso, owner of the Macaé Merchant thermoelectric, although it was not possible to reach an agreement for reduction of the contingency amounts, culminating in the commencement of arbitration proceedings in March, 2005.

On July 5, 2005, the arbitration court handed down an interlocutory order for PETROBRAS to make the payments to El Paso, which should be conditional upon furnishing of prior bank guarantee issued by a first rate bank, and the acceptance of the guarantee by PETROBRAS. Said guarantee must allow its immediate enforcement, with applicable financial charges, if the decision on the merit of the case comes to be in favor of PETROBRAS.

The amount of payments and the corresponding guarantee totaled R$ 227.337 thousand, amount which shall further include, every month, the contingent contributions referring to future maturities, up until a ruling on the merit of the case is handed down, which is forecast for November 2005.

PETROBRAS is awaiting the guarantee to be provided by El Paso for it to be analyzed and for applicable measures to be taken.

In relation to Termoceará, an agreement (term sheet) was executed on March 24, 2005 with MPX, containing the conditions for the suspension of arbitration and the judicial proceedings pending judgment. After a due diligence process and detailing of the purchase operation, a Participation Agreement was executed, which was converted into a purchase and sale agreement. The total price of the company agreed by the parties was of US$ 137 million, including settlement of debts.

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On June 24, 2005, the operation was completed, and title to Termoceará was transferred to PETROBRAS. With this purchase, the contingent payments resulting from the Consortium Agreement were extinguished together with all other liabilities arising therefrom.

In relation to the Eletrobolt Consortium, all the documentation for the purchase of Sociedade Fluminense de Energia (SFE), owner of the plant, was executed on April 29, 2005, thus concluding the acquisition process of that company. The agreed price for its units of interest was US$ 65 million. With this purchase the Consortium Agreement was terminated together with all the liabilities arising therefrom.