The European Investment Bank is providing a USD 50 million(1) loan to Telpe Celular S.A., the largest of the six operating companies owned by Tele Nordeste Celular group (TNC), to modernise and expand the latter's cellular telephone network in North-Eastern Brazil (States of Piauí, Ceará, Rio Grande do Norte, Paraíba, Pernambuco and Alagoas).

Tele Nordeste Celular S.A. is a company controlled and managed by the Telecom Italia group, through its subsidiary Telecom Italia Mobile (TIM). TNC's subsidiaries operate cellular telephone networks under 15-year concessions from the Federal Government of Brazil. The current licences were granted in 1993-94 and are renewable at expiry in 2008-2009 for another 15-year period.

The 5-year loan to be repaid in six instalments after a 2-year grace period, will be disbursed in USD and will carry a variable interest rate capped at LIBOR + 15 basis points. Banque Sudameris, a subsidiary of Banca Commerciale Italiana, guarantees the loan. The political risk (currency non-transfer, expropriation, war or civil strife) will be borne by the European Union budgetary guarantee.

This is the second loan extended by the EIB to support investment projects in the developing North-eastern Brazil (see 18/07/00 press release). TNC's investment programme is integrated in the process of liberalisation and privatisation of the Brazilian telecom sector. It will contribute to strengthen competition, improve efficiency, reduce prices and promote innovation in telecommunication services. Thereby, the project will help to improve the economic performance of the region.

Cellular telephony penetration in the region is currently of 6.3 lines per 100 inhabitants (1999), far below the 9% Brazilian average. The project aims at enabling to accommodate 1,500,000 subscribers and to cover about 75% of the population and 29% of the territory by end-2000. This will be mainly achieved by the installation of digital technology. The six North-eastern States have a population of 25.8 million, about 16% of the total Brazilian population. Their average per capita GDP is some 55% of the Brazilian average and 13% of the European Union average.

The loan is provided in the context of the EU co-operation policy with third countries. In Asia and Latin America (ALA), the EIB may lend up to EUR 2.48 billion during 2000-2006 to support capital investment projects implemented by subsidiaries of EU companies or joint-ventures between EU and ALA firms, or investment that results in environmental improvements or fosters regional integration.

The EIB was set up in 1958 to finance investment furthering EU integration. It lends for regional development, infrastructure, energy, industry and environment. Outside the EU, the Bank contributes to the European development co-operation policy in some 130 countries in Central and Eastern Europe, the Mediterranean region, Africa, the Caribbean and the Pacific, Asia and Latin America.

In 1999, the EIB provided loans totalling some EUR 32 billion, of which EUR 4 billion for projects outside the EU. The Bank borrows on the capital markets the funds for its lending. Its bonds have regularly been rated "AAA" by the leading rating agencies. The EIB works on a non-profit basis and can pass on to project promoters the excellent conditions it obtains on the markets. The EIB may finance up to 50 percent of project cost. On average it provides one third of the funding and co-finances investments with other institutions.

(1) 1 EUR = 0.9556 USD; 0.632300 GBP; 1.70561 BRL