Petrobras (PBR)

Sources of Funds

PIFCo’s Cash Flow

At December 31, 2004, PIFCo had cash and cash equivalents of U.S.$1,107.3 million, as compared to U.S.$664.2 million at December 31, 2003. This increase in cash was primarily a result of an increase in long-term loans received from us. PIFCo’s operating activities used net cash of U.S.$2,322.0 million in 2004, as compared to using net cash of U.S.$1,306.6 million in 2003, primarily as a result of an increase in outstanding receivable from sales to related parties. Its investing activities used net cash of U.S.$1,406.2 million in 2004, as compared to using net cash of U.S.$684.4 million in 2003, primarily as a result of a increase in marketable securities and an increase in notes receivable issued to related parties. PIFCo’s financing activities provided net cash of U.S.$4,171.3 million in 2004, as compared to providing net cash of U.S.$2,394.6 million in 2003, primarily as a result of an increase in long-term loans from related parties and issuance of US$ 600.0 million Global Notes.

Accounts Receivable

Accounts receivable from related parties increased 53.8% from U.S.$5,064.5 million at December 31, 2003 to U.S.$7,788.1 million at December 31, 2004, as a result of an increase of sales of oil and oil products to us.

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PIFCo’s Short-Term Borrowings

PIFCo’s short-term borrowings are denominated in U.S. dollars and consist of lines of credit and loans payable. At December 31, 2004, it had access to short-term capital through U.S.$1,111.9 million in guarantees, primarily in the form of irrevocable letters of credit supporting oil imports, as compared to U.S.$274.6 million in guarantees at December 31, 2003. At December 31, 2004 it had accessed U.S.$535.8 million in lines of credit, including the current portion of long-term lines of credit, as compared to U.S.$1,015.3 million accessed at December 31, 2003. The weighted average annual interest rate on these short-term borrowings was 4.3% at December 31, 2004, as compared to 3.9% at December 31, 2003. At December 31, 2004 and 2003, PIFCo had fully utilized all available lines of credit for purchase of imports.

PIFCo renewed its commercial paper program in May 2003 in an aggregate principal amount of U.S.$160 million in order to finance its working capital requirements. Its commercial paper program is rated A1+ by Standard & Poor’s and P-1 by Moody’s and is supported by a letter of credit issued by Barclays Bank and a standby purchase agreement with us. At December 31, 2004 and December 31, 2003, PIFCo had no commercial paper notes outstanding.

The short-term portion of PIFCo’s notes payable to related parties, which are principally composed of notes payable to us, increased from U.S.$2,442.8 million at December 31, 2003 to U.S.$2,881.5 million at December 31, 2004, primarily as a result of its short-term financing needs.

PIFCo’s Long-Term Borrowings

During 2004, PIFCo contracted from us U.S.$3,553.5 million in long-term loans due 2010, with interest rates ranging from 4.9% to 5.8%. The transaction extended the financial terms respective to certain short-term Notes payable creating liquidity for PIFCo and such liquidity was partially used to fund purchases of securities by the exclusive investment fund.

At December 31, 2004, PIFCo had outstanding U.S.$631.8 million in long-term lines of credit due between 2006 and 2012, as compared to U.S.$377.5 million at December 31, 2003. PIFCo also had outstanding:

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An investment fund, in which PIFCo has a stake, carries out the repurchases of its securities, among other investments. These repurchased securities were reclassified as financings, thus reducing its short term and long term financing balance by U.S.$3.2 million and U.S.$146.0 million, respectively, at December 31, 2004. In 2004, an expense was registered in the amount of U.S.$64.2 million representing the difference between the face value and the market value of the repurchased securities.

The following table shows the sources of PIFCo’s current and long-term debt at December 31, 2004 and 2003: