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

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

3 of 22 Investment annual budget US$ 500 millions Investment annual budget US$ millions September 2007Colombia´s Offsets Program Colombia traditional buyer of armament and defense systems No offsets policy Offsets policy Overview

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

5 of 22 Objectives 1. Obtain self- sufficiency in the life cycle of the equipment. 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. 2. Obtain industrial returns to strengthen strategic industrial sectors. Offsets September 2007Colombia´s Offsets Program Objectives

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

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

8 of 22 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. September 2007Colombia´s Offsets Program 3. Increase the capacity of GSED enterprises. Objectives Direct & Indirect Industrial (Civilian and Military) Offsets

9 of 22 September 2007Colombia´s Offsets Program 4. Support social policies of the nation.. Objectives 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 40m). 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

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

11 of 22 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. Directive 14 – July 5, 2007 September 2007Colombia´s Offsets Program Offsets Policy

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

13 of 22 With the proposals, every supplier will include the Framework Offset Agreement subscribed. Framework agreement September 2007Colombia´s Offsets Program Legal instruments The signature of the Agreement is a minimum requirement that does not give additional score.

14 of 22 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. Framework agreement: content September 2007Colombia´s Offsets Program Legal instruments Y1Y2 Y4Y10 All projects must start before year 4: 5% penalty Non-fulfillment: 5% + fulfillment obligation or indemnity

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

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

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

18 of 22 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. Offsets value and multipliers September 2007Colombia´s Offsets Program Offsets value and multipliers Good projects will receive good multipliers

19 of 22 Multipliers September 2007Colombia´s Offsets Program Offsets value and multipliers Technology transfer Technology transfer Orders1Orders1 Other orders 0.2 – 0.7 Other orders 0.2 – 0.7

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

21 of 22 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 2007Colombia´s Offsets Program Final remarks

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