Colombias Offsets Program Yaneth Giha Director of Planning

Colombia´s Offsets Program Yaneth Giha Director of Planning & Budgeting September 2007

Table of contents 1. Overview 2. Offset defense policy Objectives General guidelines 3. Legal instruments Framework agreement Complementary agreements 4. Offsets value and multipliers 5. Final remarks September 2007 Colombia´s Offsets Program 2 of 22

Overview September 2007 Colombia´s Offsets Program 3 of 22

Table of contents 1. Overview 2. Offset defense policy Objectives General guidelines 3. Legal instruments Framework agreement Complementary agreements 4. Offsets value and multipliers 5. Final remarks September 2007 Colombia´s Offsets Program 4 of 22

Objectives 1. Obtain selfsufficiency in the life cycle of the equipment. Offsets 2. Obtain industrial returns to strengthen strategic industrial sectors. Objectives 4. Support the social policies of the nation. 3. Increase the industrial capacity of the companies conforming the Social and Enterprise Group of Defense - GSED. September 2007 Colombia´s Offsets Program 5 of 22

Objectives 1. Self-sufficiency in the life cycle of the equipment Limited capacity Colombia MOD Offsets All types of defense equipment Increase inhouse capacity Acquisition and life cycle cost 30% September 2007 20 years 70% Colombia´s Offsets Program Direct & Indirect Military Offsets 6 of 22

Objectives 2. Obtain industrial returns to strengthen strategic industrial sectors. Aeronautical Naval Offset Automotive Energy related Information Tech Direct & Indirect Industrial (Civilian and Military) Offsets September 2007 Colombia´s Offsets Program 7 of 22

Objectives 3. Increase the capacity of GSED enterprises. • The military industry is responsible of manufacturing, importing and marketing weapons, ammunition and explosives, accessories and complement elements to satisfy the needs of national defense and the industrial, mining and energetic sectors of the nation. • CIAC (in a joint venture with CAMAN) is the main center for maintenance and repair services for aircrafts. • Naval Shipyard and corporation of Science and Technology in charge of design, construction, repair and maintenance of any kind of ship. Direct & Indirect Industrial (Civilian and Military) Offsets September 2007 Colombia´s Offsets Program 8 of 22

Objectives 4. Support social policies of the nation. . Although we have needs in many areas, we are focusing in four (4): 1. Physical rehab (in accordance to the Disability Public Policy). • • • Due to the internal conflict, Colombia is one of the countries with the greatest number of anti-personnel land mine victims. Victims: soldiers and civilians (poor peasants and children) in rural areas where the fighting is most bitter. 6. 4% of the Colombian population (out of 40 m). 2. Early childhood. • Public policy focusing in the improvement of education and living standards of children under 6 years old. 3. Education and training. • Various areas: training ex-combatants to reintegrate to civilian life. 4. Bio – fuel (social + industrial). • • Colombia is highly competitive in the production of prime material. Need to enhance the industrial transformation capacity. Indirect social and industrial Offsets September 2007 Colombia´s Offsets Program 9 of 22

Table of contents 1. Overview 2. Offset defense policy Objectives General guidelines 3. Legal instruments Framework agreement Complementary agreements 4. Offsets value and multipliers 5. Final conclusion September 2007 Colombia´s Offsets Program 10 of 22

Offsets Policy Directive 14 – July 5, 2007 General guidelines for the implementation of the industrial an social cooperation agreements in procurements that have 3 conditions: 1. Defense and security goods and services. 2. External Cash flow. 3. More than one million dollars or when reasonably the Ministry of Defense considers it convenient. We will ask for offsets in commercial and Government to Government transactions, including foreign subcontractors. September 2007 Colombia´s Offsets Program 11 of 22

Table of contents 1. Overview 2. Offset defense policy Objectives General guidelines 3. Legal instruments Framework agreement Complementary agreements 4. Offsets value and multipliers 5. Final remarks September 2007 Colombia´s Offsets Program 12 of 22

Legal instruments Framework agreement With the proposals, every supplier will include the Framework Offset Agreement subscribed. Legal budgetary limitations timing The signature of the Agreement is a minimum requirement that does not give additional score. No projects to evaluate September 2007 Colombia´s Offsets Program 13 of 22

Legal instruments Framework agreement: content • General description of the industrial and social cooperation required. • The offset percentage amount : 100%. • The interest areas or eligible activities. • The terms and conditions for projects presentation and approval. • The procedures for projects approval and for adjustments or changes (annual report and meeting). • Total duration of the offset agreement: 10 years. • Penalties for non-fulfillment. • Milestones: each project will have its own set of milestones. Y 1 Y 2 Y 4 Y 10 All projects must start before year 4: 5% penalty Non-fulfillment: 5% + fulfillment obligation or indemnity September 2007 Colombia´s Offsets Program 14 of 22

Table of contents 1. Overview 2. Offset defense policy Objectives General guidelines 3. Legal instruments Framework agreement Complementary agreements 4. Offsets value and multipliers 5. Final remarks September 2007 Colombia´s Offsets Program 15 of 22

Legal instruments Complementary agreements • Approved projects will turn into Complementary Agreements. • There will be as many complementary agreements as approved projects. • These agreements will include the following: 1. 2. 3. 4. The activities The specific obligations of each party The timeline and milestones The multipliers and credits September 2007 Colombia´s Offsets Program 16 of 22

Table of contents 1. Overview 2. Offset defense policy Objectives General guidelines 3. Legal instruments Framework agreement Complementary agreements 4. Offset value and multipliers 5. Final remarks September 2007 Colombia´s Offsets Program 17 of 22

Offsets value and multipliers • Range of Multipliers: 1 to 5. - Exception of 0. 2 – 0. 7 multiplier to certain orders. • No specific multipliers for direct or indirect offsets. - Case by case within the ranges. • Colombia’s multipliers were built in accordance to the needs, interests and policies. Good projects will receive good multipliers September 2007 Colombia´s Offsets Program 18 of 22

Offsets value and multipliers Multipliers Technology transfer 2 -5 Orders 1 Other orders 0. 2 – 0. 7 September 2007 Colombia´s Offsets Program 19 of 22

Table of contents 1. Overview 2. Offset defense policy Objectives General guidelines 3. Legal instruments Framework agreement Complementary agreements 4. Offset value and multipliers 5. Final remarks September 2007 Colombia´s Offsets Program 20 of 22

Final remarks • Colombia: new in the offset world. • Good partner: we expect to make extraordinary acquisitions in the next 3 years but we always buy. • We require 100% compensation, but remember 2 things: 1. We have many needs many ways to fulfill the obligation. 2. We want to incentive business partnerships. • Space for negotiation: within the limits of law and policy. September 2007 Colombia´s Offsets Program 21 of 22

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