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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 20-F



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ANNUAL REPORT



PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934



For the fiscal year ended December 31, 2003



Commission File Number: 333-14168



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Petrobras International Finance Company

(Exact name of registrant as
specified in its charter)



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Cayman Islands

(Jurisdiction of
incorporation or organization)



Anderson Square Building

P.O. Box 714

George Town, Grand Cayman

Cayman Islands

(Address of principal executive offices)



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Securities registered or to be registered pursuant to Section 12(b) of the
Act: None



Securities registered or to be registered
pursuant to Section 12(g) of the Act: None



Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act:



Title of each class:

U.S.$500,000,000 9.125% Senior Notes due 2007

U.S.$450,000,000 9.875% Senior Notes due 2008

U.S.$400,000,000 9.00% Global Step-Up Notes due 2008

U.S.$600,000,000 9.750% Senior Notes due 2011

U.S.$750,000,000 9.125% Global Notes due 2013

U.S.$750,000,000 8.375% Global Notes due 2018



Indicate the number of outstanding shares of each of the issuers classes of capital or common stock

as of the close
of the period covered by this Annual Report:

At December 31, 2003, there were outstanding:

50,000 common shares of Petrobras International Finance Company



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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈



Indicate by check mark which financial statement item the registrant has elected to follow.    Item 17 ̈Item 18  x



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TABLE OF CONTENTS



|                                                |  |                                                                              |  |     
|----------------------------------------------- |  | ---------------------------------------------------------------------------- |  | ----
|                                                |  |                                                                              |  | Page
|Incorporation of Certain Documents By Reference |  | 1                                                                           
|Forward Looking Statements                      |  | 1                                                                           
|Certain Terms and Conventions                   |  | 1                                                                           
|Presentation of Financial Information           |  | 1                                                                           
|Item 1.                                         |  | Identity of Directors, Senior Management, and Advisers                       |  | 2   
|Item 2.                                         |  | Offer Statistics and Expected Timetable                                      |  | 2   
|Item 3.                                         |  | Key Information                                                              |  | 3   
|Item 4.                                         |  | Information on the Company                                                   |  | 15  
|Item 5.                                         |  | Operating and Financial Review and Prospects                                 |  | 21  
|Item 6.                                         |  | Directors, Senior Management and Employees                                   |  | 28  
|Item 7.                                         |  | Major Shareholders and Related Party Transactions                            |  | 30  
|Item 8.                                         |  | Financial Information                                                        |  | 31  
|Item 9.                                         |  | The Offer and Listing                                                        |  | 32  
|Item 10.                                        |  | Additional Information                                                       |  | 32  
|Item 11.                                        |  | Quantitative and Qualitative Disclosures About Market Risk                   |  | 44  
|Item 12.                                        |  | Description of Securities Other than Equity Securities                       |  | 45  
|Item 13.                                        |  | Defaults, Dividend Arrearages and Delinquencies                              |  | 45  
|Item 14.                                        |  | Material Modifications to the Rights of Security Holders and Use of Proceeds |  | 45  
|Item 15.                                        |  | Controls and Procedures                                                      |  | 45  
|Item 16A.                                       |  | Audit Committee Financial Expert                                             |  | 46  
|Item 16B.                                       |  | Code of Ethics                                                               |  | 46  
|Item 16C.                                       |  | Principal Accountant Fees and Services                                       |  | 46  
|Item 17.                                        |  | Financial Statements                                                         |  | 46  
|Item 18.                                        |  | Financial Statements                                                         |  | 47  
|Item 19.                                        |  | Exhibits                                                                     |  | 47  
|Glossary of Petroleum Industry Terms            |  | 52                                                                          
|Abbreviations                                   |  | 53                                                                          
|Conversion Table                                |  | 53                                                                          



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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE



The annual report on Form 20-F of Petróleo Brasileiro S.A.PETROBRAS (Petrobras) for the year ended December 31, 2003, as first filed with the United States Securities and Exchange Commission
(the SEC) (Commission file No. 1-15106) on June 30, 2004, is incorporated by reference in this annual report.



FORWARD LOOKING STATEMENTS



Many
statements made in this annual report under the captions Item 3. Risk Factors, Item 4. History and Development of the CompanyBusiness Overview relating to the operation and performance of Petrobras International Finance
Company, or PIFCo, and Petrobras and under the caption Item 5. Operating and Financial Review and Prospects and elsewhere are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, that are not based on historical facts and are not assurances of future results. Many of the forward-looking statements contained in this annual report may be identified by the use of
forward-looking words, such as believe, expect, anticipate, should, planned, estimate and potential, among others. These forward-looking statements are subject to
certain risks and uncertainties, including, but not limited to:



| |  | our ability to obtain financing;
| | - | --------------------------------



| |  | changes in Petrobras use of our services for market purchases of crude oil and oil products;
| | - | ---------------------------------------------------------------------------------------------



| |  | changes in Brazilian foreign exchange control regulations, which may prevent Petrobras from making payment to us in U.S. dollars; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------



| |  | changes in other applicable government regulations.
| | - | ---------------------------------------------------



All forward-looking statements attributed to us or a person acting on our behalf are expressly qualified in their entirety by this cautionary statement,
and you should not place reliance on any forward-looking statement contained in this annual report.



The annual report on Form 20-F of Petrobras for the fiscal year ended December 31, 2003, incorporated herein by reference, also contains forward-looking
statements. For a discussion of the factors affecting the forward-looking statements contained in Petrobras annual report, see Forward-Looking Statements on page one of that document.



Unless the context otherwise requires, the terms PIFCo,
we, us, and our refer to Petrobras International Finance Company and its subsidiaries. When we refer to Petrobras, we refer to Petrobras and its consolidated subsidiaries, including us.



CERTAIN TERMS AND CONVENTIONS



A
glossary of petroleum industry terms, a table of abbreviations and a conversion table are presented beginning on page 52.



PRESENTATION OF FINANCIAL INFORMATION



References to Real, Reais or R$ in this annual report are to Brazilian Reais and references to U.S. dollars or U.S.$ are to United States dollars.



Our functional currency is the U.S. dollar. Substantially all of our sales
are made in U.S. dollars and all of our debt is denominated in U.S. dollars. Accordingly, our audited consolidated financial statements as of December 31, 2003 and 2002, and for each of the three years in the period ended December 31, 2003, and the
accompanying notes contained in this annual report have been presented in U.S. dollars and prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and include our wholly-owned subsidiaries: Petrobras Europe
Limited, Petrobras Finance Limited, Bear Insurance Company Limited  BEAR (which Brasoil, a Petrobras subsidiary, transferred to us in January 2003) and Petrobras Netherlands B.V. (which we transferred to Petrobras in January 2003). See Item 5.
Operating and Financial Review and Prospects and Note 1 to our audited consolidated financial statements.



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Certain figures included in this annual report have been subject to rounding adjustments; accordingly,
figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.



Item 1. Identity of Directors, Senior Management, and Advisers



Not applicable.



Item 2. Offer Statistics and Expected Timetable



Not applicable.



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Item 3. Key Information



SELECTED FINANCIAL DATA



The following table of
selected financial data is presented in U.S. dollars and prepared in accordance with U.S. GAAP. The data for each of the five years in the period ended December 31, 2003 have been derived from our audited consolidated financial statements, which
were audited by Ernst & Young Auditores Independentes S/S for the year ended December 31, 2003 and by PricewaterhouseCoopers Auditores Independentes for each of the years ended December 31, 2002, 2001, 2000 and 1999.



The information below should be read in conjunction with, and is qualified in
its entirety by reference to, our audited consolidated financial statements and the accompanying notes and Item 5. Operating and Financial Review and Prospects.



|                                                           |  |                                 |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|---------------------------------------------------------- |  | ------------------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | - |  | ---- | -------- | - |  | - | -------- | -
|                                                           |  | For the Year Ended December 31, |         
|                                                           |  | 2003                            |          |   | 2002 |   |          | 2001 |  |   | 2000     |   |  | 1999 |         
|                                                           |  | (in millions of U.S. dollars)   |         
|Income Statement Data:                                     |  |                                 |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Sales of crude oil and oil products and Services           |  | $                               | 6,975.5  |   |      | $ | 6,390.2  |      |  | $ | 6,260.5  |   |  | $    | 7,937.0  |   |  | $ | 4,728.0  |  
|Lease income(1)                                            |  |                                 |         |   |      |   | 36.1     |      |  |   | 10.7     |   |  |      |         |   |  |   |         |  
|                                                           |  |                                 |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|                                                           |  |                                 | 6,975.5  |   |      |   | 6,426.3  |      |  |   | 6,271.2  |   |  |      | 7,937.0  |   |  |   | 4,728.0  |  
|                                                           |  |                                 |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Cost of sales                                              |  |                                 | (6,920.1 | ) |      |   | (6,371.5 | )    |  |   | (6,253.0 | ) |  |      | (7,912.6 | ) |  |   | (4,723.8 | )
|Lease expense(1)                                           |  |                                 |         |   |      |   | (24.0    | )    |  |   | (10.5    | ) |  |      |         |   |  |   |         |  
|Selling, general and administrative Expenses               |  |                                 | (18.6    | ) |      |   | (1.2     | )    |  |   | (0.1     | ) |  |      |         |   |  |   |         |  
|                                                           |  |                                 |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|                                                           |  |                                 | (6,938.7 | ) |      |   | (6,396.7 | )    |  |   | (6,263.6 | ) |  |      | (7,912.6 | ) |  |   | (4,723.8 | )
|                                                           |  |                                 |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Gross profit                                               |  |                                 | 36.8     |   |      |   | 29.6     |      |  |   | 7.6      |   |  |      | 24.4     |   |  |   | 4.2      |  
|Financial income(2)                                        |  |                                 | 442.9    |   |      |   | 219.6    |      |  |   | 158.8    |   |  |      | 221.6    |   |  |   | 158.4    |  
|Financial expense(3)                                       |  |                                 | (482.7   | ) |      |   | (314.7   | )    |  |   | (187.1   | ) |  |      | (219.7   | ) |  |   | (142.2   | )
|Gain on materials and equipment                            |  |                                 |         |   |      |   |         |      |  |   | 0.4      |   |  |      |         |   |  |   |         |  
|                                                           |  |                                 |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Net income (loss)                                          |  | $                               | (3.0     | ) |      | $ | (65.5    | )    |  | $ | (20.3    | ) |  | $    | 26.3     |   |  | $ | 20.4     |  
|                                                           |  |                                 |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Balance Sheet Data (end of period):                        |  |                                 |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Cash and cash equivalents                                  |  | $                               | 1,262.0  |   |      | $ | 260.6    |      |  | $ | 48.6     |   |  | $    | 51.2     |   |  | $ | 49.4     |  
|Accounts receivable                                        |  |                                 |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Related parties                                            |  |                                 | 5,064.5  |   |      |   | 4,837.1  |      |  |   | 2,583.7  |   |  |      | 3,011.2  |   |  |   | 2,839.7  |  
|Trade                                                      |  |                                 | 109.4    |   |      |   | 57.1     |      |  |   | 44.7     |   |  |      | 39.6     |   |  |   | 2.3      |  
|Notes receivable  related parties                         |  |                                 | 1,726.4  |   |      |   | 1,631.6  |      |  |   | 283.0    |   |  |      |          |   |  |   |          |  
|Export Prepayment  related parties                        |  |                                 | 1,479.4  |   |      |   | 751.2    |      |  |   | 751.2    |   |  |      |          |   |  |   |          |  
|Total assets                                               |  |                                 | 10,196.6 |   |      |   | 8,697.3  |      |  |   | 4,277.8  |   |  |      | 3,244.5  |   |  |   | 2,900.0  |  
|Trade accounts payable                                     |  |                                 |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Related parties                                            |  |                                 | 271.0    |   |      |   | 292.0    |      |  |   | 288.1    |   |  |      | 70.8     |   |  |   | 148.1    |  
|Other                                                      |  |                                 | 349.0    |   |      |   | 281.1    |      |  |   | 231.0    |   |  |      | 593.2    |   |  |   | 306.8    |  
|Notes payable - related parties                            |  |                                 | 2,442.8  |   |      |   | 3,688.2  |      |  |   | 334.6    |   |  |      | 1,716.6  |   |  |   | 1,628.9  |  
|Short-term financing and current portion of long-term debt |  |                                 | 1,076.4  |   |      |   | 367.5    |      |  |   | 990.4    |   |  |      | 530.4    |   |  |   | 741.5    |  
|Long-term debt                                             |  |                                 | 5,825.3  |   |      |   | 3,248.7  |      |  |   | 2,335.0  |   |  |      | 245.0    |   |  |   |         |  
|Capital lease obligations                                  |  |                                 |         |   |      |   | 601.7    |      |  |   |          |   |  |      |          |   |  |   |          |  
|Total stockholders equity                                 |  |                                 | 94.8     |   |      |   | 43.9     |      |  |   | 49.4     |   |  |      | 9.7      |   |  |   | 21.5     |  
|Total liabilities and stockholders equity                 |  |                                 | 10,196.6 |   |      |   | 8,697.3  |      |  |   | 4,277.8  |   |  |      | 3,244.5  |   |  |   | 2,900.0  |  

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|(1) | As a result of the transfer of PNBV, our leasing subsidiary, to Petrobras, we had no lease income or lease expense in 2003.
|--- | ---------------------------------------------------------------------------------------------------------------------------

|(2) | Financial income represents primarily the imputed interest realized from our sales of crude oil and oil products to Petrobras.
|--- | ------------------------------------------------------------------------------------------------------------------------------

|(3) | Financial expense consists primarily of costs incurred by us in financing our activities in connection with the importation by Petrobras of crude oil and oil products.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



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RISK FACTORS



Risks Relating to Our Company



We may not earn enough money from our own operations to meet our debt obligations.



We are a direct wholly-owned subsidiary of Petrobras incorporated in the Cayman Islands as an exempted company with limited
liability. Accordingly, our financial position and results of operations are largely affected by decisions of our parent company. We have limited operations consisting principally of the purchase of crude oil and oil products from third parties and
the resale of those products to Petrobras, with financing for such operations provided by Petrobras as well as third-party credit providers. We also resell crude oil and oil products to third parties on a limited basis. Our ability to pay interest,
principal and other amounts due on our outstanding and future debt obligations will depend upon a number of factors, including:



| | Petrobras financial condition and results of operations;
|- | ---------------------------------------------------------



| | the extent to which Petrobras continues to use our services for market purchases of crude oil and oil products;
|- | ---------------------------------------------------------------------------------------------------------------



| | Petrobras willingness to continue to make loans to us and provide us with other types of financial support;
|- | ------------------------------------------------------------------------------------------------------------



| | our ability to access financing sources, including the international capital markets and third-party credit facilities; and
|- | ---------------------------------------------------------------------------------------------------------------------------



| | our ability to transfer our financing costs to Petrobras.
|- | ---------------------------------------------------------



In the event of a material adverse change in Petrobras financial condition or results of operations or in Petrobras financial support of us,
we may not have sufficient funds to repay all amounts due on our indebtedness. See Risks Relating to Petrobras for a more detailed description of certain risks that may have a material adverse impact on Petrobras financial
condition or results of operations and therefore affect our ability to meet our debt obligations.



If Brazilian law restricts Petrobras from paying us in U.S. dollars, we may have insufficient U.S. dollar funds to make payments on our debt obligations.



We obtain substantially all of our funds from Petrobras payments in
U.S. dollars for crude oil that it purchases from us. In order to remit U.S. dollars to us, Petrobras must comply with Brazilian foreign exchange control regulations, including preparing specified documentation to be able to obtain U.S. dollar funds
for payment to us. If Brazilian law were to impose additional restrictions, limitations or prohibitions on Petrobras ability to convert Reais into U.S. dollars, we may not have sufficient U.S. dollar funds available to make payment on our debt
obligations. Such restrictions could also have a material adverse effect on the Brazilian economy or Petrobras business, financial condition and results of operations.



We may be limited in our ability to pass on our financing costs.



We are principally engaged in the purchase of crude oil and oil products for
resale to Petrobras, as described above. At any time, we may incur indebtedness related to such purchases and/or obtain financing from Petrobras or third-party creditors. At December 31, 2003, approximately 13.8% of our indebtedness was
floating-rate debt denominated in U.S. dollars not having the benefit of Petrobras standby purchase obligation or other support. Petrobras is in the process of changing its risk management processes, including those which may affect us, but
neither Petrobras nor we have yet entered into derivative contracts or made other arrangements to hedge against interest rate risk. We have historically passed on our financing costs to Petrobras by selling crude oil and oil products to Petrobras at
a premium to compensate for our financing costs. Although we and Petrobras intend for this practice to continue in the future, we cannot assure you that this practice will continue. Our inability to transfer our financing costs to Petrobras could
have a material adverse effect on our business and on our ability to meet our debt obligations.



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Risks Relating to Petrobras Operations



Substantial or extended declines in the prices of crude oil and oil products may have a material adverse effect on Petrobras
operations.



Petrobras does not, and will not, have
control over the factors affecting international prices for crude oil and oil products. The average prices of Brent crude, an international benchmark oil, were approximately U.S.$28.84 per barrel for 2003, U.S.$25.02 per barrel for 2002 and
U.S.$24.44 per barrel for 2001.



Changes in crude oil prices
typically result in changes in prices for oil products. Lower crude oil prices have various effects on Petrobras, including decreasing its net operating revenues, net income and cash flows. In comparison, higher crude oil prices generally lead to
increases in Petrobras net operating revenues, net income and cash flows. However, even during periods of high crude oil prizes, depending on the behavior of demand, Petrobras may not be able to pass through higher prizes to consumers.



Historically, international prices for crude oil and oil
products have fluctuated widely as a result of many factors. These factors include:



| |  | global and regional economic and political developments in crude oil producing regions, particularly in the Middle East;
| | - | ------------------------------------------------------------------------------------------------------------------------



| |  | the ability of OPEC and other crude oil producing nations to set and maintain crude oil production levels and prices;
| | - | ---------------------------------------------------------------------------------------------------------------------



| |  | other actions taken by major crude oil producing or consuming countries;
| | - | ------------------------------------------------------------------------



| |  | global and regional supply and demand for crude oil and oil products;
| | - | ---------------------------------------------------------------------



| |  | competition from other energy sources;
| | - | --------------------------------------



| |  | domestic and foreign government regulations;
| | - | --------------------------------------------



| |  | weather conditions;
| | - | -------------------



| |  | war; and
| | - | --------



| |  | terrorism.
| | - | ----------



Until January 2, 2002, the prices Petrobras was allowed to charge for crude oil and oil products (and, as a result, its recorded prices for the calculation of net operating revenues) were determined on the basis of a
pricing formula established by the Brazilian government designed to reflect changes in the Real/U.S. dollar exchange rate and international market prices for relevant benchmark products. As of January 2, 2002, the crude oil and oil products markets
in Brazil were deregulated in their entirety.



Petrobras
expects continued volatility and uncertainty in international prices for crude oil and oil products. Substantial or extended declines in international crude oil prices may have a material adverse effect on Petrobras business, results of
operations and financial condition and the value of its proved reserves.



Because of changes in government regulations, Petrobras faces increased competition and may lose market share.



The Brazilian government eliminated all price controls on crude oil and oil products in early 2002. Prices remain regulated, however, for natural gas and
electricity. These controls could have an adverse effect on Petrobras revenues from these business activities.



The changes in government regulation have enabled multinational and regional oil companies to enter the Brazilian energy market. Competition in
Petrobras upstream and downstream activities has increased and will increase further, as existing and new participants expand their activities as a result of these regulatory changes.



Although Petrobras prices for oil products are based on international prices, in
periods of high international prices or sharp devaluations of the Real, Petrobras may not be able to adjust its prices in Reais sufficiently to maintain parity with international prices.



Since the Brazilian governments elimination of all price controls on
crude oil and oil products in January 2002, there have been periods of high international prices or sharp devaluations of the Real when Petrobras has been unable to increase prices in Reais sufficiently to maintain parity with international prices.
While Petrobras does not have an obligation to supply the Brazilian market,



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during periods when the local prices of oil products were below prevailing international prices, Petrobras
competitors were unwilling to supply the local market. In order to ensure adequate supply of oil products in Brazil, Petrobras sold oil products below prevailing international prices.



As a result of deregulation of the Brazilian market, and the elimination of import tariffs in particular, Petrobras
competitors can sell products in the Brazilian market at parity with international prices. In light of this increased competition, Petrobras has less flexibility to maintain local prices above international prices to compensate for revenues not
realized in periods in which it sold oil products below prevailing international market prices.



Petrobras may be required to sell some of its refining capacity in Brazil.



Petrobras presently owns 98.6% of the existing refining capacity in Brazil. Petrobras plans to upgrade its present refineries and may build new refineries
in Brazil, sell participation interests in its present refineries to new partners or engage in asset swaps, as it did through its business combination in 2001 involving assets of Repsol-YPF S.A. Although Petrobras is not presently subject to any
requirement to divest any assets, and the Brazilian government has not made any proposal in that respect, it is possible that Petrobras will be required to divest a portion of its refining capacity or other assets in the future. Any such divestiture
could have a material adverse effect on Petrobras financial condition and results of operations.



Petrobras ability to achieve its growth objectives depends on its ability to gain access to additional reserves.



Petrobras ability to achieve its growth objectives is highly dependent upon its level of success in finding, acquiring
or gaining access to additional reserves, as well as successfully developing current reserves. In general, the volume of production from crude oil and natural gas properties declines as reserves are depleted, with the rate of decline depending on
reservoir characteristics. Unless Petrobras conducts successful exploration and development activities or acquires properties containing proved reserves, or both, its proved reserves will decline as reserves are extracted.



Exploratory drilling involves numerous risks, including the risk that Petrobras will
not discover commercially productive oil or natural gas reserves.



Petrobras exploration and development activities expose it to the inherent risks of drilling, including the risk that Petrobras will not discover commercially productive crude oil or natural gas reserves. The
costs of drilling, completing and operating wells are often uncertain and numerous factors beyond Petrobras control (such as unexpected drilling conditions, equipment failures or accidents and shortages or delays in the availability of
drilling rigs and the delivery of equipment) may cause drilling operations to be curtailed, delayed or cancelled. Petrobras future drilling, exploration and acquisition activities may not be successful and, if unsuccessful, could harm its
future results of operations and financial condition.



Petrobras
crude oil and natural gas reserve estimates involve some degree of uncertainty and may prove to be incorrect over time.



The proved crude oil and natural gas reserves set forth in Petrobras annual report are its estimated quantities of crude oil, natural gas and
natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be recoverable from known reservoirs under existing economic and operating conditions (i.e., prices and costs as of the date the estimate is made).
Petrobras proved developed crude oil and natural gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Although 91% of Petrobras domestic reserves are
independently certified, there are uncertainties in estimating quantities of proved reserves related to prevailing crude oil and natural gas prices applicable to Petrobras production, which may lead Petrobras to make revisions to its reserve
estimates.



Petrobras equipment, facilities and operations are
subject to numerous environmental and health regulations which have become more stringent in the recent past and may result in increased liabilities and increased capital expenditures.



Petrobras activities are subject to a wide variety of federal, state
and local laws, regulations and permit requirements relating to the protection of human health and the environment, both in Brazil and in other jurisdictions in which Petrobras operates. In Brazil, Petrobras could be exposed to civil penalties,
criminal sanctions and closure orders for non-compliance with these environmental regulations, which, among other things, limit or prohibit emissions or spills of toxic substances produced in connection with its operations. Waste disposal and
emissions regulations may require Petrobras to clean up or retrofit its facilities at substantial cost and could result in substantial liabilities. The Instituto Brasileiro do Meio Ambiente dos Recursos NaturaisRenováveis(Brazilian Institute of the Environment and Renewable Natural Resources, or IBAMA) routinely inspects Petrobras oil platforms in the Campos Basin, and may impose fines, restrictions on operations or other sanctions in connection with its
inspections.



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Petrobras spent approximately U.S.$750 million in 2003, U.S.$466 million in 2002 and U.S.$473 million in
2001 to comply with environmental laws and to implement improvements in its environmental practices. Because environmental regulations have become more stringent in Brazil and in other jurisdictions where Petrobras operates, it is probable that
Petrobras capital expenditures for compliance with environmental regulations and to effect improvements in health, safety and environmental practices may increase substantially in the future. In addition, due to the possibility of
unanticipated regulatory or other developments, the amount and timing of future environmental expenditures may vary widely from those currently anticipated. The amount of investments Petrobras makes in any given year is subject to limitations by the
Brazilian government. Accordingly, expenditures required for compliance with environmental regulation could result in reductions in other strategic investments that Petrobras has planned, and any such reduction may have a material adverse effect on
Petrobras results of operations or financial condition.



In the
past, significant oil spills have occurred and Petrobras has incurred, and may continue to incur, liabilities in connection with oil spills, including clean up costs, government fines and potential lawsuits.



From time to time, oil spills occur in connection with Petrobras
operations. In 2003, Petrobras experienced spills totaling 73,000 gallons of crude oil, as compared to 52,000 gallons in 2002 and 691,000 gallons in 2001. As a result of certain of Petrobras spills, it was fined by various state and federal
environmental agencies, named the defendant in several civil and criminal suits and remains subject to several investigations and potential civil and criminal liabilities. These or any future oil spills may have a material adverse effect on
Petrobras financial condition or results of operations. Accordingly, if one or more of the potential liabilities resulting from these oil spills were to result in an actual fine or civil or criminal liability, Petrobras operations and
financial condition could be negatively affected.



Petrobras may incur
losses and spend time and money defending pending litigation and arbitration.



Petrobras is currently a party to numerous legal proceedings relating to civil, administrative, environmental, labor and tax claims filed against it. These claims involve substantial amounts of money and other
remedies. Several individual disputes account for a significant part of the total amount of claims against Petrobras. Petrobras audited financial statements as of December 31, 2003 include reserves totaling U.S.$260 million as of that date,
for probable and reasonably estimable losses and expenses it may incur in connection with all of its pending litigation and an additional provision of U.S.$95 million related to various tax assessments received from the Instituto Nacional de
SeguridadeSocial(National Security Institute, or INSS).



In the event that a number of the claims that Petrobras considers to represent remote or reasonably possible risks of loss were to be decided against it, or in the event that the losses estimated turn out to be higher than the reserves
made, the aggregate cost of unfavorable decisions could have a material adverse effect on Petrobras financial condition and results of operations. Additionally, Petrobras management may be required to direct its time and attention to
defending these claims, which could preclude them from focusing on its core business. Depending on the outcome, certain litigation, including matters involving its platforms and asset swaps, could result in restrictions on Petrobras operations
and have a material adverse effect on certain of its businesses.



If a
State of Rio de Janeiro law imposing ICMS on oil upstream activities is applied to Petrobras, its results of operations and financial condition may be adversely affected.



In June 2003, the State of Rio de Janeiro enacted a law imposing the Imposto sobre Circulação de
Mercadorias e Serviços (state sales tax, or ICMS) on upstream activities. Although the law is technically in force, the government of the State of Rio de Janeiro has yet to apply it. Currently, the ICMS is assessed at the point of sale
from refineries to distributors but not at the wellhead level. As a result, the tax is mainly collected in the eight states where Petrobras refineries are located (Rio de Janeiro, São Paulo, Rio Grande do Sul, Paraná, Minas
Gerais, Amazonas, Ceará and Bahia). If the State of Rio de Janeiro applies the law to Petrobras, it would change the point of collection of a portion of the ICMS from the refinery level to the wellhead level of production in the State of Rio
de Janeiro. As a result, Petrobras would be unable to utilize part of the taxes imposed at the wellhead level in Rio de Janeiro to offset taxes that are imposed at the refinery level in other states, and therefore would have paid taxes on the same
oil products at both production and refining levels. The attorney general has filed a lawsuit with the Brazilian Supreme Court challenging the constitutionality of the ICMS legislation. If the law is declared constitutional and the State of Rio de
Janeiro applies the law to Petrobras, the amount of ICMS that Petrobras would be required to pay to the State of Rio de Janeiro could increase by approximately R$5.4 billion (U.S.$1.9 billion) per year. This increase could have a material adverse
effect on Petrobras results of operations and financial condition.



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A final judicial ruling upholding the view of the Brazilian Revenue Service of Rio de Janeiro that drilling and
production platforms may no longer be classified as sea-going vessels will increase the amount of taxes Petrobras pays, and such an increase may have a material adverse effect on Petrobras results of operations and financial condition.



The Rio de Janeiro branch of the Brazilian Revenue
Service (Secretaria de Receita Federal) has asserted that, under Brazilian law, drilling and production platforms may not be classified as sea-going vessels and therefore should not be chartered but leased. Based on this interpretation of
Brazilian law, overseas remittances for charter payments would be reclassified as lease payments, and would be subject to withholding tax at the rate of 15%.



The Brazilian Revenue Service has filed two tax assessments against Petrobras in connection with the withholding tax (IRRF) on foreign remittances of
payments related to the charter of vessels of movable platform types. On February 17, 2003, the Brazilian Revenue Service served Petrobras with a tax assessment notice for R$93 million (U.S.$32 million) covering disputed taxes for 1998. On June 27,
2003, the Brazilian Revenue Service served Petrobras with a tax assessment notice for R$3,064 million (U.S.$1,066 million) covering disputed taxes for the period from 1999 to 2002. Petrobras recently received two unfavorable rulings from the
Brazilian Revenue Service with respect to these tax assessments, and has appealed these rulings to a higher administrative court.



Petrobras believes that Brazilian law supports its view that drilling and production platforms may be classified as sea-going vessels. However, in the
event that a final judicial ruling supports the Brazilian Revenue Services position, the taxes Petrobras pays in connection with its drilling and production platforms would significantly increase, and such an increase could have a material
adverse effect on its level of investments and, therefore, on its results of operations and financial condition.



Labor disputes, strikes, work stoppages and protests could lead to increased operating costs.



All of Petrobras employees, other than its maritime employees, are subject to a collective bargaining agreement with
the Oil Workers Unified Federation, which was signed on November 4, 2003, and is retroactive to September 1, 2003. This collective bargaining agreement will expire on August 31, 2004. Petrobras negotiated a separate collective bargaining
agreement with the maritime employees union. The agreement was signed on January 30, 2004, is retroactive to November 1, 2003 and will expire on October 31, 2004.



From time to time, Petrobras has been subject to strikes and work stoppages. In 2001, its oil workers began a five-day
strike, which led to a decrease in crude oil production of four million barrels of oil equivalent per day. If Petrobras workers were to strike, the resulting work stoppages could have an adverse effect on Petrobras, as it does not carry
insurance for losses incurred as a result of business interruptions of any nature, including business interruptions caused by labor action. As a result, Petrobras financial condition and results of operations could be adversely affected by
future strikes, work stoppages, protests or similar activities.



Petrobras participation in the domestic power market has generated losses, and the Brazilian regulatory environment for energy remains uncertain.



Consistent with the global trend of other major oil and gas companies and to secure demand for its natural gas, Petrobras
participates in the domestic power market. Despite a number of incentives introduced by the former Brazilian government to promote the development of thermoelectric power plants, development of such plants by private investors has been slow to
progress. Petrobras has invested in 11 (5 in operation and 6 under construction or development) of the 39 gas-fired power generation plants being built or proposed to be built in Brazil under the program to promote the development of thermoelectric
plants, known as the Programa Prioritário deTermoeletricidade(Thermoelectric Priority Program, or PPT). Petrobras invests in some of these plants with partners, many of whom may have power purchase agreements with the plants.
Petrobras has had contractual disputes in connection with these investments and other disputes may occur. Depending on the outcome of any such disputes, they could have an adverse economic impact on Petrobras, including on the profitability of its
investments.



In 2002, Congress passed a law increasing
government intervention in the domestic power market, and in 2003 the current administration proposed a new regulatory model for the energy sector. The New Industry Model Law was enacted on March 16, 2004, but because the new law remains subject to
the enactment of decrees of the Brazilian government and implementing resolutions of the National Electric Energy Agency (ANEEL), many aspects of the regulatory environment for thermoelectric power remain uncertain, and it is not clear that
thermoelectric power will remain a priority for the country.



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Petrobras has limited its investments in this area, but its participation in the domestic power market
may never become profitable and may continue to adversely affect its operating results and financial condition.



Petrobras may not be able to obtain financing for all of its planned investments.



The Brazilian government maintains control over Petrobras budget and establishes limits on its investments and
long-term debt. As a state-controlled entity, Petrobras must submit its proposed annual budgets to the Ministry of Planning, Budget and Management, the Ministry of Mines and Energy and the Brazilian Congress for approval. Petrobras is endeavoring to
obtain financing that does not require Brazilian government approval, such as structured financings, but there can be no assurance that it will succeed. As a result, Petrobras may not be free to make all the investments it envisions, including those
it has agreed to make to expand and develop its crude oil and natural gas fields. If Petrobras is unable to make these investments, its operating results and financial condition may be adversely affected. In addition, failure to make its planned
investments in Brazil could hurt Petrobras competitive position in the Brazilian oil and gas sector, particularly as other companies enter the market.



Currency fluctuations could have a material adverse effect on Petrobras financial condition and results of operations, because most of Petrobras
revenues are in Reais and a large portion of its liabilities are in foreign currencies.



The principal market for Petrobras products is Brazil, and over the last three fiscal years over 83% of Petrobras revenues have been
denominated in Reais. A substantial portion of Petrobras indebtedness and some of its operating expenses and capital expenditures are, and are expected to continue to be, denominated in or indexed to U.S. dollars and other foreign currencies.
In addition, during 2003, Petrobras imported U.S.$5.7 billion of crude oil and oil products, the prices of which were all denominated in U.S. dollars.



The Real depreciated 18.7% in 2001 and 52.3% in 2002 against the U.S. dollar, before appreciating 18.2% in 2003 against the U.S. dollar. As of June 15,
2004, the exchange rate of the Real to the U.S. dollar was R$3.138 per U.S.$1.00, representing a depreciation of approximately 6.7% in 2004 year-to-date. The value of the Real in relation to the U.S. dollar may continue to fluctuate and may include
a significant depreciation of the Real against the U.S. dollar as occurred in 2002. Any future substantial devaluation of the Real may adversely affect Petrobras operating cash flows and its ability to meet its foreign currency-denominated
obligations. You should consider this risk in light of past devaluations of the Real caused by inflationary and other pressures.



Petrobras is exposed to increases in prevailing market interest rates.



As of December 31, 2003, approximately 57% of Petrobras total indebtedness consisted of floating rate debt. Although
Petrobras is changing its risk management practices, it has not yet entered into derivative contracts or made other arrangements to hedge against interest rate risk. Accordingly, if market interest rates (principally LIBOR) rise, Petrobras
financing expenses will increase.



In the aftermath of the U.S. military
action in Iraq there may be changes to the international oil markets, some of which could have an adverse effect on Petrobras.



Following the formal declaration of the end of hostilities in Iraq, the United Nations eliminated sanctions that had limited Iraqs ability to
participate in the international oil markets. As a result, it is expected that in the future, Iraq will substantially increase its production and export sales of crude oil and oil products. Given the uncertainty surrounding the circumstances under
which Iraqs oil industry will be managed over the next few years, it is impossible to predict the economic or political goals which the United States government or any other party controlling such industry will seek to achieve. The changes to
the international oil markets that could result from Iraqs full re-entry into such markets could have a material adverse effect on Petrobras financial condition and results of operations.



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Petrobras is not insured against business interruption for its Brazilian operations and most of Petrobras
assets are not insured against war and terrorism.



Petrobras does not maintain coverage for business interruption for its Brazilian operations and does not insure most of its assets against war and terrorism. A terrorist attack or an operational incident could therefore have a material
adverse effect on Petrobras financial condition or results of operations.



Petrobras is subject to substantial risks relating to its business and operations in Argentina and other South American countries.



Petrobras operates in Argentina through its subsidiary, Petrobras Energia Participaciones S.A. (PEPSA). Approximately 5.9% of Petrobras total crude
oil and natural gas production and 3.5% of its proved crude oil and natural gas reserves were located in Argentina at December 31, 2003. As a result, PEPSAs results of operations and financial condition, and consequently, Petrobras
results of operations and financial condition, may be adversely affected by fluctuations in the Argentine economy, Argentine political instability, and governmental actions concerning the economy, including:



| |  | the imposition of exchange controls, which could restrict the flow of capital out of Argentina and make it more difficult for PEPSA to service its non-Peso denominated debt,
totaling U.S.$1,960 million at December 31, 2003;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the imposition of restrictions on hydrocarbon exports, which could decrease PEPSAs U.S. dollar cash receipts and limit PEPSAs ability to make payment on its
foreign-currency denominated debt;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the devaluation of the Argentine Peso, which could adversely affect PEPSAs results of operations, financial condition and ability to make payment on its foreign-currency
denominated debt;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | increases in export tax rates for crude oil and oil products, which could lead to a reduction in PEPSAs export margins and cash flows;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



| |  | the imposition of price controls restricting PEPSAs ability to increase the price of energy and natural gas sold in the Argentine market, which could adversely affect
PEPSAs results of operations, financial condition and ability to make payment on its foreign-currency denominated debt; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the pesification of utility rates, which combined with the devaluation of the Argentine Peso, resulted in payment defaults by three of PEPSAs affiliated utility companies,
TGS, CIESA (the parent of TGS), and Transener, and which could lead to defaults by other affiliated utility companies.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Petrobras is also active in Venezuela, Ecuador, Colombia, Bolivia and Peru. Petrobras operations in Venezuela and Bolivia are its most significant
international operations outside of Argentina. Petrobras operations in Venezuela represented 2.1% of its total production in barrels of oil equivalent in 2003 and 2.6% of its proved crude oil and natural gas reserves at December 31, 2003.
Petrobras operations in Bolivia represented 1.5% of its total production in barrels of oil equivalent in 2003 and 2.9% of its proved crude oil and natural gas reserves at December 31, 2003. Accordingly, its operations may be negatively
affected by:



| |  | political, social and economic instability in Venezuela and Bolivia, including strikes and other forms of political protest, similar to those experienced by Venezuela during the
first quarter of 2003 and by Bolivia during the third quarter of 2003;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | increases in royalty payments from production in its Venezuelan fields;
| | - | -----------------------------------------------------------------------



| |  | any decisions by OPEC to decrease production volumes, as Venezuela is a member of OPEC, and Petrobras is subject to any decisions by OPEC to reduce production;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | any decision by the Venezuelan government to modify the terms and conditions of PEPSAs operating agreements in Venezuela; and
| | - | ------------------------------------------------------------------------------------------------------------------------------



| |  | any decision by the Bolivian government to modify the existing energy regulatory framework, including the regulation and taxation of the oil and natural gas industry.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



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If one or more of the risks described above were to materialize, Petrobras may not achieve its strategic
objectives in South America, resulting in a material adverse effect on its results of operations and financial condition.



The current Argentine economic, political and social crisis could adversely affect Petrobras Argentine operations.



From the last quarter of 1998 until 2003, the Argentine economy was in a
recession marked by reduced levels of consumption and investment, increased unemployment, declining gross domestic product, capital flight and a suspension of payments on its approximately U.S.$95 billion of sovereign debt owed to private creditors.
Argentinas GDP contracted by 4.4% in 2001 and 10.9% in 2002.



On December 1, 2001, the Argentine government led by President Fernando de la Rúa effectively froze bank deposits and introduced exchange controls restricting capital outflows. The measures were perceived as further paralyzing the
economy for the benefit of the banking sector and caused a sharp rise in social discontent, ultimately triggering public protests, outbreaks of violence and the looting of stores throughout Argentina. On December 20, 2001, President Fernando de la
Rúa resigned, and since then, Argentina has had several presidents, including President Eduardo Duhalde, who held office from January 2002 to May 2003. During his term, President Duhalde and his government undertook a number of far-reaching
initiatives, including:



| |  | ratifying the suspension of payment of certain of Argentinas sovereign debt;
| | - | -----------------------------------------------------------------------------



| |  | amending Argentinas Convertibility Law to allow the exchange rate of the Argentine Peso to float, breaking the Pesos decade-old one-to-one relationship to the U.S.
dollar, and resulting in a 66.4% decline in the value of the Peso against the U.S. dollar from January 7, 2002 to March 31, 2003;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | converting certain U.S. dollar-denominated debts into peso-denominated debts at a one-to-one exchange rate and U.S. dollar-denominated bank deposits into peso-denominated bank
deposits at an exchange rate of 1.4 Argentine Pesos per U.S.$1.00;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | restructuring bank deposits and maintaining restrictions on bank withdrawals;
| | - | -----------------------------------------------------------------------------



| |  | enacting an amendment to the Argentine Central Banks charter to (i) allow it to print currency in excess of the amount of the foreign reserves it holds, (ii) make short-term
advances to the Argentine federal government and (iii) provide financial assistance to financial institutions with liquidity constraints or solvency problems;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | imposing restrictions on transfers of funds abroad subject to certain exceptions; and
| | - | -------------------------------------------------------------------------------------



| |  | requiring the deposit into the banking system of foreign currency earned from exports, subject to certain exceptions.
| | - | ---------------------------------------------------------------------------------------------------------------------



On May 25, 2003, a new president, Néstor Kirchner, took office. His
current term will expire on December 10, 2007. There remains uncertainty as to the nature and scope of the measures to be adopted by Mr. Kirchners government to address many of the countrys unresolved economic problems, including the
ongoing renegotiation of the countrys public debt.



During 2003, some economic indicators of the Argentine economy began to stabilize. In 2003, GDP grew by approximately 8.7%, inflation remained below 4%, consumption and investment increased and the peso appreciated significantly against the
U.S. dollar. Nevertheless, this return to growth and partial stabilization are recent developments and may not be sustainable. These developments must be viewed against the significant declines preceding 2003 and against the substantial continuing
uncertainties in Argentinas economic and legal environment, including the renegotiation of the countrys external public debt and public utility contracts, restructuring of the financial system and redesigning of the federal fiscal
regime. We cannot be certain that the economy will not suffer additional shocks.



Over the last few years, Argentina has also been afflicted by an energy crisis. In May 2002, the Argentine government declared a state of emergency in the supply of hydrocarbons in Argentina. Subsequently, in March
2004, Argentinas Secretary of Energy issued a resolution pursuant to which limits on natural gas exports may be imposed and, in fact, some limits have already been imposed. Further Argentine political instability, fluctuations in the Argentine
economy and governmental actions concerning the economy could adversely affect Petrobras operations in Argentina and may have a material adverse impact on its results of operations and financial condition.



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Risks Relating to the Relationship between Petrobras and the Brazilian Government



The Brazilian government, as Petrobras controlling shareholder, may cause
Petrobras to pursue certain macroeconomic and social objectives that may have an adverse effect on its results of operations and financial condition.



The Brazilian government, as Petrobras controlling shareholder, has pursued, and may pursue in the future, certain of its macroeconomic and
social objectives through Petrobras. Brazilian law requires the Brazilian government to own a majority of Petrobras voting stock, and so long as it does, the Brazilian government will have the power to elect a majority of the members of
Petrobras board of directors and, through them, a majority of the executive officers who are responsible for Petrobras day-to-day management. As a result, Petrobras may engage in activities that give preference to the objectives of the
Brazilian government rather than to its own economic and business objectives. In particular, Petrobras continues to assist the Brazilian government to ensure that the supply of crude oil and oil products in Brazil meets Brazilian consumption
requirements. Accordingly, Petrobras may continue to make investments, incur costs and engage in sales on terms that may have an adverse effect on its results of operations and financial condition.



If the Brazilian government reinstates controls over the prices Petrobras can charge
for crude oil and oil products, such price controls could affect Petrobras financial condition and results of operations.



In the past, the Brazilian government set prices for crude oil and oil products in Brazil, often below prevailing prices on the world oil markets. These
prices involved elements of cross-subsidy among different oil products sold in various regions in Brazil. The cumulative impact of this price regulation system on Petrobras is recorded as an asset on Petrobras balance sheet under the line item
Petroleum and Alcohol Account-Receivable from the Brazilian government. The balance of the account at December 31, 2003 was U.S.$239 million. Effective January 2, 2002, all price controls for crude oil and oil products ended, and while
no price controls were imposed on crude oil and oil products in 2002 or 2003, the Brazilian government could decide to reinstate price controls in the future as a result of market instability or other conditions. If this were to occur,
Petrobras financial condition and results of operations could be adversely affected.



Historical Brazilian government control of Petrobras sales prices and regulation of its operating revenues mean that Petrobras results of operations cannot be easily compared from year to year.



One of the tools available to the Brazilian
government to control inflation and pursue other economic and social objectives has been the regulation of oil product prices. The method by which the Brazilian government has controlled Petrobras prices has varied from year to year. Until
December 31, 2001, the Brazilian government regulated the prices at which Petrobras was permitted to sell its oil products. The Brazilian government also established freight subsidies to ensure uniform oil product prices throughout Brazil, but these
subsidies have since been phased out. Beginning in July 1998, and until the institution of price deregulation on January 2, 2002, the Brazilian government established a new methodology for calculating the price of oil products based on fluctuations
in exchange rates and international market prices for relevant benchmark products.



Because of this government price control and the change in methodology:



| |  | the various line items in Petrobras financial statements are not necessarily comparable from period to period; and
| | - | -------------------------------------------------------------------------------------------------------------------



| |  | Petrobras results of operations reflect not only its consolidated operations, but also the results of economic activity undertaken on behalf of the Brazilian government.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Additionally, from time to time, the Brazilian
government may impose specific taxes or other special payment obligations on Petrobras operations that may affect its results of operations.



Petrobras does not own any of the crude oil and natural gas reserves in Brazil.



A guaranteed source of crude oil and natural gas reserves is essential to an oil and gas companys sustained production
and generation of income. As a result, many oil and gas companies own crude oil and natural gas reserves in other countries. Under Brazilian law, the Brazilian government owns all crude oil and natural gas reserves in Brazil. Petrobras possesses the
exclusive right to develop its reserves pursuant to concession agreements awarded to it by the Brazilian government, but if the Brazilian government were to restrict or prevent Petrobras from exploiting these crude oil and natural gas reserves, its
ability to generate income would be adversely affected.



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Risks Relating to Brazil



The Brazilian government has historically exercised, and continues to exercise, significant influence over the Brazilian economy. Brazilian political and
economic conditions have a direct impact on Petrobras business and may have a material adverse effect on Petrobras.



The Brazilian economy has been characterized by significant involvement by the Brazilian government, which often changes monetary, credit and other
policies to influence Brazils economy. The Brazilian governments actions to control inflation and other economic policies have often involved wage and price controls, modifications to the Central Banks base interest rates, and
other measures, such as the freezing of bank accounts, which occurred in 1990.



The Brazilian governments economic policies may have important effects on Brazilian corporations and other entities, including Petrobras, and on market conditions and prices of Brazilian securities.
Petrobras financial condition and results of operations may be adversely affected by the following factors and the Brazilian governments response to these factors:



| |  | devaluations and other exchange rate movements;
| | - | -----------------------------------------------



| |  | inflation;
| | - | ----------



| |  | exchange control policies;
| | - | --------------------------



| |  | social instability;
| | - | -------------------



| |  | price instability;
| | - | ------------------



| |  | energy shortages;
| | - | -----------------



| |  | interest rates;
| | - | ---------------



| |  | liquidity of domestic capital and lending markets;
| | - | --------------------------------------------------



| |  | tax policy; and
| | - | ---------------



| |  | other political, diplomatic, social and economic developments in or affecting Brazil.
| | - | -------------------------------------------------------------------------------------



Inflation and government measures to curb inflation may contribute significantly to economic uncertainty in Brazil and to heightened
volatility in the Brazilian securities markets and, consequently, may adversely affect Petrobras financial condition and results of operations.



Petrobras principal market is Brazil, which has, in the past, periodically experienced extremely high rates of inflation. Inflation, along with
recent governmental measures to combat inflation and public speculation about possible future measures, has had significant negative effects on the Brazilian economy. The annual rates of inflation, as measured by the National Consumer Price Index
(Índice Nacional de Preços ao Consumidor), have decreased from 2,489.1% in 1993 to 929.3% in 1994, to 8.4% in 1999 and to 5.3% in 2000. The same index increased to 9.4% during 2001 and to 14.7% in 2002, before decreasing to
10.4% in 2003.



Brazil may experience high levels of inflation
in the future. The lower levels of inflation experienced since 1994 may not continue. Future governmental actions, including actions to adjust the value of the Real, could trigger increases in inflation.



Fluctuations in the value of the Real against the U.S. dollar may result in uncertainty
in the Brazilian economy and the Brazilian securities market and could negatively impact Petrobras business.



Over the last three fiscal years, approximately 83% of Petrobras revenues have been denominated in Reais, although prices for crude oil and oil
products have been based on international prices. A substantial portion of Petrobras indebtedness and some of its operating expenses and capital expenditures are, and are expected to continue to be, denominated in or indexed to the U.S. dollar
and other foreign currencies. In addition, during the year ended December 31, 2003, Petrobras imported approximately U.S.$5.7 billion of crude oil and oil products, the prices of which were all denominated in U.S. dollars.



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As a result of inflationary pressures, the Real and its predecessor currencies have been devalued
periodically during the last four decades. Throughout this period, the Brazilian government has implemented various economic plans and utilized a number of exchange rate policies, including sudden devaluations, periodic mini-devaluations during
which the frequency of adjustments has ranged from daily to monthly, floating exchange rate systems, exchange controls and dual exchange rate markets. From time to time, there have been significant fluctuations in the exchange rates between the Real
and the U.S. dollar and other currencies. For example, the Real declined in value against the U.S. dollar by 18.7% in 2001 and by 52.3% in 2002, before appreciating 18.2% against the U.S. dollar in 2003.



Devaluation of the Real relative to the U.S. dollar could create additional
inflationary pressures in Brazil by generally increasing the price of imported products and requiring recessionary governmental policies to curb aggregate demand. On the other hand, appreciation of the Real against the U.S. dollar may lead to a
deterioration of the countrys current account and the balance of payments, as well as dampen export-driven growth. The potential impact of the floating exchange rate and of measures by the Brazilian government aimed at stabilizing the Real is
uncertain. In addition, a substantial increase in inflation may weaken investor confidence in Brazil. Policies pursued by the Brazilian government, and investors reactions to actual or potential governmental policies, may contribute to
economic uncertainty in Brazil and adversely affect Petrobras financial condition and results of operations.



Risks Relating to our Debt Securities



The market for our notes may not be liquid.



Our notes are not listed on any securities exchange and are not quoted through an automated quotation system. We can make no assurance as to the liquidity
of or trading markets for our notes. We cannot guarantee that the holders of our notes will be able to sell their notes in the future. If a market for our notes does not develop, holders of our notes may not be able to resell the notes for an
extended period of time, if at all.



Enforcement of Petrobras
obligations under the standby purchase agreement might take longer than expected.



Petrobras will enter into a standby purchase agreement in support of our obligation under the notes and an indenture. Petrobras obligation to purchase from the noteholders any unpaid amounts of principal,
interest and other amounts due under the notes and the indenture applies, subject to certain limitations, irrespective of whether any such amounts are due at maturity of the notes or otherwise. See Senior NotesStandby Purchase
Agreements and Global NotesStandby Purchase Agreements.



Petrobras has been advised by its counsel that the enforcement of the standby purchase agreement in Brazil against Petrobras, if necessary, will occur under a form of judicial process that, while similar, has certain
procedural differences from those applicable to enforcement of a guarantee and, as a result, the enforcement of the standby purchase agreement may take longer than would otherwise be the case with a guarantee.



Restrictions on the movement of capital out of Brazil may impair your ability to
receive payments on the standby purchase agreement.



The Brazilian government may impose restrictions on the conversion of Reais into foreign currencies and on the remittance to foreign investors of proceeds from their investments in Brazil. Brazilian law permits the government to impose
these restrictions whenever there is a serious imbalance in Brazils balance of payments or there are reasons to foresee a serious imbalance.



The Brazilian government imposed remittance restrictions for approximately six months in 1990. Similar restrictions, if imposed, would impair or prevent
the conversion of payments under the standby purchase agreement from Reais into U.S. Dollars and the remittance of the U.S. Dollars abroad. We cannot assure you that the Brazilian government will not take similar measures in the future.



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Petrobras may not be able to pay its obligations under the standby purchase agreement in U.S. Dollars.



Payments by Petrobras to us for the import of oil,
the expected source of our cash resources to pay our obligations under the notes, will not require approval by or registration with the Central Bank of Brazil. There may be other regulatory requirements that Petrobras will need to comply with in
order to make funds available to us. If Petrobras is required to make payments under the standby purchase agreement, Central Bank of Brazil approval will be required to make such payments. Any approval from the Central Bank of Brazil may only be
requested when such payment is to be remitted abroad by Petrobras, and will be granted by the Central Bank of Brazil on a case-by-case basis. It is not certain that any such approvals will be obtainable at a future date. In case the noteholders
receive payments in Reais corresponding to the equivalent U.S. Dollar amounts due under our notes, it may not be possible to convert these amounts into U.S. Dollars. Petrobras will not need any prior or subsequent approval from the Central Bank of
Brazil to use funds it holds abroad to comply with its obligations under the standby purchase agreement.



Petrobras would be required to pay judgments of Brazilian courts enforcing its obligations under the standby purchase agreement only in Reais.



If proceedings were brought in Brazil seeking to enforce Petrobras
obligations in respect of the standby purchase agreement, Petrobras would be required to discharge its obligations only in Reais. Under the Brazilian exchange control limitations, an obligation to pay amounts denominated in a currency other than
Reais, which is payable in Brazil pursuant to a decision of a Brazilian court, may be satisfied in Reais at the rate of exchange, as determined by the Central Bank of Brazil, in effect on the date of payment.



A finding that Petrobras is subject to U.S. bankruptcy laws and that the standby
purchase agreement executed by Petrobras was a fraudulent conveyance could result in noteholders losing their legal claim against Petrobras.



Our obligation to make payments on the notes is supported by Petrobras obligation under the standby purchase agreement to make payments on our
behalf. Petrobras has been advised by its external U.S. counsel that the standby purchase agreement is valid and enforceable in accordance with the laws of the State of New York and the United States. In addition, Petrobras has been advised by its
general counsel, Mr. Nilton de Almeida Maia, that the laws of Brazil do not prevent the standby purchase agreement from being valid, binding and enforceable against Petrobras in accordance with its terms. In the event that U.S. federal fraudulent
conveyance or similar laws are applied to the standby purchase agreement, and Petrobras, at the time it entered into the standby purchase agreement:



| |  | was or is insolvent or rendered insolvent by reason of its entry into the standby purchase agreement;
| | - | -----------------------------------------------------------------------------------------------------



| |  | was or is engaged in business or transactions for which the assets remaining with Petrobras constituted unreasonably small capital; or
| | - | --------------------------------------------------------------------------------------------------------------------------------------



| |  | intended or intends to incur, or believed or believes that Petrobras would incur, debts beyond its ability to pay such debts as they mature; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  | in each case, received or receives less than reasonably equivalent value or fair consideration therefor,
| | - | --------------------------------------------------------------------------------------------------------



then Petrobras obligations under the standby purchase agreement could be avoided, or claims in respect of the standby purchase
agreement could be subordinated to the claims of other creditors. Among other things, a legal challenge to the standby purchase agreement on fraudulent conveyance grounds may focus on the benefits, if any, realized by Petrobras as a result of our
issuance of these notes. To the extent that the standby purchase agreement is held to be a fraudulent conveyance or unenforceable for any other reason, the holders of the notes would not have a claim against Petrobras under the standby purchase
agreement and will solely have a claim against us. We cannot assure you that, after providing for all prior claims, there will be sufficient assets to satisfy the claims of the noteholders relating to any avoided portion of the standby purchase
agreement.



Item 4. Information on the Company



HISTORY AND DEVELOPMENT OF THE COMPANY



We were
established on September 24, 1997 as a wholly-owned subsidiary of Braspetro Oil Services Company, or Brasoil, a wholly-owned subsidiary of Petrobras Internacional S.A. (Braspetro), which has since been absorbed by Petrobras. We were initially
incorporated under the name Brasoil Finance Company, which was changed by special resolution of our shareholders to Petrobras International Finance Company on September 25, 1997. On January 14, 2000, the board of directors of Braspetro and Petrobras
approved the transfer of 100% of our voting shares from Brasoil to Petrobras. Since April 1, 2000, we have operated as a wholly-owned subsidiary of Petrobras.



15



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##### Table of Contents

We are a tax exempt company incorporated with limited liability under the laws of the Cayman Islands. Our
registered office is located at Anderson Square Building, P.O. Box 714, George Town, Grand Cayman, Cayman Islands, and our telephone number is 55-21-2534-1410.



BUSINESS OVERVIEW



We were incorporated in order to facilitate and finance the import of crude oil and oil products by Petrobras into Brazil. Accordingly, our primary
function is to act as an intermediary between third-party oil suppliers and Petrobras by engaging in crude oil and oil product purchases from international suppliers and reselling crude oil and oil products in U.S. dollars to Petrobras on a deferred
payment basis, at a price which represents a premium to compensate us for our financing costs. We are generally able to obtain credit to finance purchases on the same terms granted to Petrobras, and we buy crude oil and oil products at the same
price that suppliers would charge Petrobras directly.



As part
of Petrobras strategy to expand its international operations and facilitate its access to international capital markets, we engage in borrowings in international capital markets supported by Petrobras, primarily through standby purchase
agreements.



In addition, we also engage in a number of
activities that are conducted by three wholly-owned subsidiaries:



| | Petrobras Europe Limited, or PEL, a United Kingdom company which acts as an agent and advisor in connection with Petrobras activities in Europe, the Middle East, the Far East
and North Africa;
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Petrobras Finance Limited, or PFL, a Cayman Islands company, which facilitates an exports prepayment program linked to the resale of fuel oil and bunker fuel bought from Petrobras;
and
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Bear Insurance Company Limited  BEAR, a company incorporated in Bermuda that contracts insurance for Petrobras subsidiaries.
|- | -----------------------------------------------------------------------------------------------------------------------------



In January 2003, we transferred Petrobras Netherlands B.V., or PNBV, a Dutch
company engaged in leasing activities of primarily offshore equipment to be used by Petrobras for exploration and production of crude oil and natural gas, to Petrobras as part of Petrobras restructuring of its international business segment.
PNBV became a wholly-owned subsidiary of Petrobras, effective as of January, 2003.



Beginning in 2004, as part of a Petrobras restructuring of its offshore subsidiaries in order to centralize trading operations, we have engaged in limited exports of oil and oil products.



Our Principal Commercial Activities



Our principal activity is the purchase of crude oil and oil products for
resale to Petrobras and, to a limited extent, third parties. We acquire the crude oil and oil products either through purchases on the spot market or long-term supply contracts. Our crude oil and oil product purchase obligations are, in most
instances, guaranteed by Petrobras. We sell the products to Petrobras at our purchase price, plus a premium, determined in accordance with a formula designed to pass on our average costs of capital to Petrobras.



In addition, we finance our oil trading activities principally from
commercial banks, including lines of credit and commercial paper programs, as well as through inter-company loans from Petrobras and the issuance of notes in the international capital markets.



16



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##### Table of Contents

The following chart illustrates how we act as the intermediary between international crude oil suppliers
and Petrobras.



LOGO



We purchase crude oil and oil
products from international oil suppliers on a free-on-board (F.O.B.) basis under standard terms that traditionally require payment within 30 days from the bill of lading. Petrobras buys crude oil and oil products from us under terms that allow for
payment up to 270 days from the date of the bill of lading. Petrobras would typically be unable to meet the 30-day payment term imposed by international suppliers because of the complexity of producing a full set of documents for a single bill of
lading when, for example, the shipment to which that bill of lading relates must be delivered to different parts of Brazil and different sets of documents must be delivered to each delivery point. Depending on the unloading ports locations,
this process may be completed up to 120 days from the vessels departure. Because we are not subject to the Brazilian regulations applicable to Petrobras, we can pay the international supplier on time without having to produce these different
sets of documents. To cover our financing costs, we include a premium when we sell crude oil and oil products to Petrobras.



Our Principal Suppliers



Our eight principal suppliers represented 63.7% of our total imports for 2003, as compared to 65.7% of our total imports for 2002 and 69.1% of our total
imports for 2001. The chart below sets forth information with respect to our principal suppliers for 2003, 2002 and 2001.



17



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##### Table of Contents

OUR PRINCIPAL SUPPLIERS(1)



|                              |  |                        |  |                                      |         |                   |                              |   |                                      |                              |                   |  |      |                                      |  |                   |         |  |      |  
|----------------------------- |  | ---------------------- |  | ------------------------------------ | ------- | ----------------- | ---------------------------- | - | ------------------------------------ | ---------------------------- | ----------------- |  | ---- | ------------------------------------ |  | ----------------- | ------- |  | ---- | -
|                              |  |                        |  | Year Ended December 31, 2003         |         |                   | Year Ended December 31, 2002 |   |                                      | Year Ended December 31, 2001 |                  
|Supplier                      |  | Country ofHeadquarters |  | Imports (in millions of U.S.dollars) |         | % of TotalImports |                              |   | Imports (in millions of U.S.dollars) |                              | % of TotalImports |  |      | Imports (in millions of U.S.dollars) |  | % of TotalImports |        
|Saudi Aramco                  |  | Saudi Arabia           |  | $                                    | 888.5   |                   | 16.8                         | % |                                      | $                            | 534.1             |  | 10.3 | %                                    |  | $                 | 587.3   |  | 9.4  | %
|Petrobras America, Inc. (PAI) |  | United States          |  |                                      | 767.9   |                   | 14.5                         |   |                                      |                              | 947.1             |  | 18.3 |                                      |  |                   | 1,320.8 |  | 21.2 |  
|Sonatrach Group               |  | Algeria                |  |                                      | 647.1   |                   | 12.3                         |   |                                      |                              | 604.0             |  | 11.7 |                                      |  |                   | 970.8   |  | 15.6 |  
|Shell                         |  | England                |  |                                      | 362.5   |                   | 6.9                          |   |                                      |                              | 279.5             |  | 5.4  |                                      |  |                   |        |  |     |  
|Mega                          |  | Argentina              |  |                                      | 235.9   |                   | 4.5                          |   |                                      |                              | 158.1             |  | 3.1  |                                      |  |                   |        |  |     |  
|AGIP                          |  | Italy                  |  |                                      | 160.7   |                   | 3.0                          |   |                                      |                              |                  |  |     |                                      |  |                   | 318.3   |  | 5.1  |  
|Somo                          |  | Iraq                   |  |                                      | 159.5   |                   | 3.0                          |   |                                      |                              |                  |  |     |                                      |  |                   |        |  |     |  
|PDVSA Petróleo                |  | Venezuela              |  |                                      | 141.9   |                   | 2.7                          |   |                                      |                              | 413.6             |  | 8.0  |                                      |  |                   | 515.9   |  | 8.2  |  
|Sinochem                      |  | England                |  |                                      |         |                   |                              |   |                                      |                              | 240.9             |  | 4.7  |                                      |  |                   |        |  |     |  
|Reliance                      |  | India                  |  |                                      |         |                   |                              |   |                                      |                              | 217.7             |  | 4.2  |                                      |  |                   | 224.2   |  | 3.6  |  
|Ryttsa (Repsol-YPF)           |  | Argentina              |  |                                      |        |                   |                             |   |                                      |                              |                  |  |     |                                      |  |                   | 248.8   |  | 4.0  |  
|Chevron San Jorge             |  | Argentina              |  |                                      |        |                   |                             |   |                                      |                              |                  |  |     |                                      |  |                   | 126.5   |  | 2.0  |  
|                              |  |                        |  |                                      |         |                   |                              |   |                                      |                              |                   |  |      |                                      |  |                   |         |  |      |  
|Total                         |  |                        |  | $                                    | 3,364.0 |                   | 63.7                         | % |                                      | $                            | 3,395.0           |  | 65.7 | %                                    |  | $                 | 4,312.6 |  | 69.1 | %
|                              |  |                        |  |                                      |         |                   |                              |   |                                      |                              |                   |  |      |                                      |  |                   |         |  |      |  

---

|(1) | Excluding suppliers to our subsidiaries
|--- | ---------------------------------------



Our Principal Customers



In 2003, Petrobras conducted 99.8% of its crude oil and oil products import activities through us in order to give it the flexibility it needs to meet
various delivery and funding requirements. During 2003, we sold crude oil and oil products with a total value of U.S.$ 5,332.1 million, as compared to U.S.$5,191.1 million in 2002 and U.S.$6,250.0 million in 2001.



Our sales of crude oil and oil products to Petrobras and the Alberto
Pasqualini refinery (Refap, which is 70% owned by Petrobras) represented U.S.$4,408.7 million (82.7%) of our total sales in 2003 and U.S.$ 4,884.7 million (94.1%) of our total sales in 2002. Our sales of crude oil and oil products to
third parties and other related parties (excluding Petrobras and Refap) totaled U.S.$923.8 million for 2003, U.S.$306.4 million for 2002 and U.S.$407.6 million for 2001. Our nine principal clients, excluding Petrobras and Refap, represented 67.0% of
our sales to third parties and related parties at December 31, 2003, as compared to 80.5% at December 31, 2002 and 68.0% at December 31, 2001.



18



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##### Table of Contents

THIRD PARTY AND RELATED PARTY SALES(1)



|                        |  |                              |       |                 |                              |   |                              |                              |                 |  |      |                              |  |                 |       |  |      |  
|----------------------- |  | ---------------------------- | ----- | --------------- | ---------------------------- | - | ---------------------------- | ---------------------------- | --------------- |  | ---- | ---------------------------- |  | --------------- | ----- |  | ---- | -
|                        |  | Year Ended December 31, 2003 |       |                 | Year Ended December 31, 2002 |   |                              | Year Ended December 31, 2001 |                
|                        |  | Sales                        |       | % of TotalSales |                              |   | Sales                        |                              | % of TotalSales |  |      | Sales                        |  | % of TotalSales |      
|                        |  | (in millions ofU.S. dollars) |       |                 |                              |   | (in millions ofU.S. dollars) |                              |                 |  |      | (in millions ofU.S. dollars) |  |                 |      
|Petrobras America, Inc. |  | $                            | 196.7 |                 | 21.3                         | % |                              | $                            | 104.3           |  | 34.0 | %                            |  | $               | 6.3   |  | 1.6  | %
|BP                      |  |                              | 98.7  |                 | 10.7                         |   |                              |                              | 28.8            |  | 9.4  |                              |  |                 | 30.5  |  | 7.5  |  
|Shell                   |  |                              | 88.8  |                 | 9.6                          |   |                              |                              |                 |  |      |                              |  |                 |      |  |     |  
|Ipiranga                |  |                              | 61.3  |                 | 6.6                          |   |                              |                              | 12.5            |  | 4.1  |                              |  |                 | 60.5  |  | 14.8 |  
|Gasmar                  |  |                              | 52.3  |                 | 5.7                          |   |                              |                              |                 |  |      |                              |  |                 |       |  |      |  
|Manguinhos              |  |                              | 38.6  |                 | 4.2                          |   |                              |                              |                 |  |      |                              |  |                 |       |  |      |  
|Unipec                  |  |                              | 29.1  |                 | 3.1                          |   |                              |                              |                 |  |      |                              |  |                 |       |  |      |  
|Geogas                  |  |                              | 28.2  |                 | 3.0                          |   |                              |                              |                 |  |      |                              |  |                 |       |  |      |  
|Repsol                  |  |                              | 25.7  |                 | 2.8                          |   |                              |                              |                 |  |      |                              |  |                 |       |  |      |  
|Gases y Graneles        |  |                              |       |                 |                              |   |                              |                              | 24.6            |  | 8.0  |                              |  |                 |      |  |     |  
|Ancap                   |  |                              |       |                 |                              |   |                              |                              | 19.2            |  | 6.3  |                              |  |                 |      |  |     |  
|Vitol                   |  |                              |       |                 |                              |   |                              |                              | 16.4            |  | 5.4  |                              |  |                 |      |  |     |  
|EG3                     |  |                              |       |                 |                              |   |                              |                              | 14.6            |  | 4.8  |                              |  |                 |      |  |     |  
|Ferrel                  |  |                              |       |                 |                              |   |                              |                              | 14.0            |  | 4.5  |                              |  |                 | 20.5  |  | 5.3  |  
|Gazocean                |  |                              |       |                 |                              |   |                              |                              | 12.2            |  | 4.0  |                              |  |                 |      |  |     |  
|Glencore                |  |                              |      |                 |                             |   |                              |                              |                |  |     |                              |  |                 | 56.4  |  | 13.8 |  
|Cargill                 |  |                              |      |                 |                             |   |                              |                              |                |  |     |                              |  |                 | 39.0  |  | 9.6  |  
|Contigroup              |  |                              |      |                 |                             |   |                              |                              |                |  |     |                              |  |                 | 25.7  |  | 6.3  |  
|Trafigura               |  |                              |      |                 |                             |   |                              |                              |                |  |     |                              |  |                 | 22.5  |  | 5.5  |  
|Hin Leong               |  |                              |      |                 |                             |   |                              |                              |                |  |     |                              |  |                 | 14.8  |  | 3.6  |  
|                        |  |                              |       |                 |                              |   |                              |                              |                 |  |      |                              |  |                 |       |  |      |  
|Total                   |  | $                            | 619.4 |                 | 67.0                         | % |                              | $                            | 246.6           |  | 80.5 | %                            |  | $               | 276.2 |  | 68.0 | %
|                        |  |                              |       |                 |                              |   |                              |                              |                 |  |      |                              |  |                 |       |  |      |  

---

|(1) | Excludes Petrobras and Refap, as we do not generate profits from sales to Petrobras and Refap. For each year, includes only our nine principal clients during that year.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Petrobras Europe Limited (PEL)



In May 2001, we established PEL, a wholly-owned subsidiary incorporated and
based in the United Kingdom, to consolidate Petrobras trade and finance activities in Europe, the Middle East, the Far East and North Africa. These activities consist of advising on, and negotiating the terms and conditions for, crude oil and
oil products supplied to us and Petrobras, as well as marketing Brazilian crude oil and crude oil products exported to the geographic areas in which PEL operates. PEL plays an advisory role in connection with these activities and undertakes no
direct or additional commercial or financial risk. PEL provides these advisory and marketing services as an independent contractor, pursuant to a services agreement between PEL and Petrobras. In exchange, Petrobras compensates PEL for all costs
incurred in connection with these activities, plus a margin.



Petrobras
Finance Limited (PFL)



In December 2001, we established
PFL, a wholly-owned subsidiary incorporated and registered in the Cayman Islands. PFL primarily purchases bunker and fuel oil from Petrobras and sells the products in the international market in order to generate export receivables to cover its
obligations to transfer these receivables to a trust under an exports prepayment program. The exports prepayment program helps provide PFL with the funding necessary to purchase oil products from Petrobras, as described below.



Bear Insurance Company Limited (BEAR)



In January 2003, we received BEAR from Brasoil. This transaction took place
as part of the restructuring of Petrobras international business segment. Bear currently serves as an intermediary for Petrobras, advising on, and negotiating the terms and conditions of, certain of Petrobras insurance policies.



19



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##### Table of Contents

Exports Prepayment Program



Petrobras sells and delivers bunker fuel and fuel oil and, subject to certain conditions, other oil products (collectively,
the Eligible Products) to PFL under two principal agreements: the Master Export Contract and the Prepayment Agreement. The PF Export Receivables Master Trust (the Trust) was formed under the laws of the Cayman Islands to
provide PFL with the funding necessary to purchase Eligible Products from Petrobras and resell these products through the arrangements described below.



On December 21, 2001, the Trust issued to PFL U.S.$750 million of Senior Trust Certificates in four series (collectively, the Series 2001 Senior
Trust Certificates) and U.S.$150 million of Junior Trust Certificates (the Series 2001 Junior Trust Certificates, and together with the Series 2001 Senior Trust Certificates, the Series 2001 Trust Certificates). PFL in
turn offered the Series 2001 Senior Trust Certificates in four series (series A-1, A-2, B and C) to certain certificate holders.



On May 21, 2003, the Trust issued to PFL U.S.$550 million of Senior Trust Certificates (the Series 2003-A Senior Trust Certificates), maturing
on June 1, 2015. On the same date, the Trust issued U.S.$200 million of Senior Trust Certificates (the Series 2003-B Senior Trust Certificates), maturing on June 1, 2013. The Series 2003-A Senior Trust Certificates, along with the Series
2003-B Senior Trust Certificates and the Series 2001 Senior Trust Certificates, represent senior undivided beneficial interests in the property of the Trust (other than certain charitable property held by the Trust).



On the same date, the Trust also issued to PFL U.S.$110 million in Series
2003-A Junior Trust Certificates and U.S.$40 million in Series 2003-B Junior Trust Certificates (collectively, the Series 2003 Junior Trust Certificates, and together with the Series 2003-A Senior Trust Certificates and the Series 2003-B
Senior Trust Certificates, the Series 2003 Trust Certificates). The Series 2003 Junior Trust Certificates represent, together with the 2001 Junior Trust Certificates, junior subordinated undivided beneficial interests in the property of
the Trust (other than the charitable property).



PFL agreed to
transfer to the Trustee, in return for the Series 2001 Senior Trust Certificates and Series 2001 Junior Trust Certificates, the right to a specified amount of receivables to be generated from PFLs sale of Eligible Products with a value equal
to the aggregate amount scheduled to be paid in respect of the Series 2001 Senior Trust Certificates and the Series 2001 Junior Trust Certificates. PFL also agreed to transfer to the Trustee, in return for the Series 2003 Senior Trust Certificates
and Series 2003 Junior Trust Certificates, the right to an additional specified amount of receivables to be generated from PFLs sale of Eligible Products with a value equal to the aggregate amount scheduled to be paid in respect of the Series
2003 Senior Trust Certificates and the Series 2003 Junior Trust Certificates.



The value of receivables scheduled to be designated for sale in any quarterly period represents a portion, but not all, of the receivables expected to be generated from the sale of Eligible Products by PFL in such
period. The remainder of such receivables remain the property of PFL.



The timely payment of interest on, and scheduled principal of, each series of the Series 2001 Senior Trust Certificates is unconditionally and irrevocably guaranteed under financial guaranty insurance policies issued by XL Capital Assurance
Inc., MBIA Insurance Corporation or Ambac Assurance Corporation (collectively, the Enhancers). The timely payment of interest on, and scheduled principal of, the Series 2003-B Senior Trust Certificates is unconditionally and irrevocably
guaranteed under a financial guaranty insurance policy issued by MBIA Insurance Corporation. The Series 2003-A Senior Trust Certificates do not have the benefit of any financial guaranty insurance policy.



In addition to the Series 2001 Senior Trust Certificates and the Series 2003
Senior Trust Certificates currently outstanding, additional series of senior trust certificates (which may or may not benefit from a financial guaranty insurance policy) may be issued to PFL from time to time if Petrobras agrees to sell additional
Eligible Products to PFL in an amount that is adequate to make all required payments under the additional series of senior trust certificates and certain other conditions are met.



In May 2004, the Company, PFL, and the PF Export Trust executed an amendment to the Trust Agreement allowing the Junior
Trust Certificates to be set-off against the related Notes, rather than paid in full, after fulfillment of all obligations pursuant to the Senior Trust Certificates.



Petrobras Bunker Fuel Business



Bunker fuel is a common term for marine fuels that are burned in the boilers or engines of ships. Petrobras produces and exports two types of bunker
fuel: intermediate fuel oil or marine fuel (for ships main engines and, occasionally, auxiliary engines) and marine diesel fuel or marine gas oil (for auxiliary engines and main engines of military vessels).



Petrobras bunker fuel production in 2003 was 26,741 Mbbl
(Mbbl stands for thousand barrels), as compared to 29,869 Mbbl in 2002. Petrobras total bunker fuel production totaled 132,188 Mbbl for the period from January 1, 1999 to December 31, 2003. Petrobras exports approximately 93% of
the bunker fuel it produces, with the exception of bunker fuel used by Petrobras fleet. Bunker fuel sold in Brazil by Petrobras to ships owned by non-Brazilian companies is considered an export under Brazilian regulations.



PETROBRAS ANNUAL BUNKER FUEL PRODUCTION



|                     |  |        |  |        |  |        |  |        |  |       
|-------------------- |  | ------ |  | ------ |  | ------ |  | ------ |  | ------
|                     |  | 2003   |  | 2002   |  | 2001   |  | 2000   |  | 1999  
|                     |  | (Mbbl)
|Export               |  | 21,402 |  | 23,653 |  | 21,438 |  | 18,985 |  | 16,866
|Domestic Consumption |  | 1,048  |  | 1,620  |  | 1,533  |  | 1,476  |  | 2,047 
|Petrobras Fleet      |  | 4,291  |  | 4,596  |  | 4,497  |  | 4,113  |  | 4,623 
|                     |  |        |  |        |  |        |  |        |  |       
|Total                |  | 26,741 |  | 29,869 |  | 27,468 |  | 24,574 |  | 23,536
|                     |  |        |  |        |  |        |  |        |  |       



Petrobras Fuel Oil
Business



Fuel oil originates from residual fractions
or distillation units at the refinery and from other processes such as deasphalting. Dilutents in the form of lighter cutter stocks are mixed into the residue pool to create the desired viscosity for different types of fuel oil.



Major buyers of Petrobras fuel oil include utilities, refineries and
traders. Fuel oil is used by industries and utilities to run machinery and generate electricity. Commercial buildings and homes employ fuel oil for heating purposes, and refineries use fuel oil for blending purposes.



20



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##### Table of Contents

Fuel Oil Export Sales



The following table sets forth Petrobras fuel oil export sales for the period 1999-2003:



FUEL OIL EXPORT SALES



|                    |  |       |  |       |  |       |  |       |  |      
|------------------- |  | ----- |  | ----- |  | ----- |  | ----- |  | -----
|                    |  | 2003  |  | 2002  |  | 2001  |  | 2000  |  | 1999 
|Millions of U.S.$   |  | 967.3 |  | 697.0 |  | 658.0 |  | 482.2 |  | 170.8
|Millions of Barrels |  | 38.4  |  | 30.8  |  | 31.5  |  | 20.1  |  | 14.9 



ORGANIZATIONAL
STRUCTURE



Petrobras conducts its operations through its
Brazilian and international subsidiaries. We are a wholly-owned subsidiary of Petrobras and we conduct certain of our operations through our three wholly-owned subsidiaries. For a description of our subsidiaries and their respective businesses, see
Business Overview.



PROPERTY PLANT AND
EQUIPMENT



We do not own or lease any materially important
physical properties or fixed assets. The majority of our assets were composed of investments in direct-finance leases with Petrobras until December 31, 2002. These investments included contracts to lease various types of materials and equipment
utilized for the exploration and production of crude oil and natural gas, including production and drilling platforms, oil tankers, supply boats and other types of ships. We then leased these assets to Petrobras. In January 2003, PNBV was
transferred to PETROBRAS in order to group the companies according to the main areas of business. However, we still have negligible assets that we acquire in order to sell to PNBV. The value of this equipment at December 31, 2003 was U.S.$1.3
million.



Item 5. Operating and Financial Review and Prospects



MANAGEMENTS DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



You should read the following discussion of our financial
condition and results of operations together with the attached audited consolidated financial statements and the accompanying notes for the year ended December 31, 2003 beginning on page F-2. You should also read our audited consolidated financial
statements for the year ended December 31, 2002 and the accompanying notes, which are included in our annual report on Form 20-F for the year ended December 31, 2002, but which are not presented in this annual report. The audited consolidated
financial statements for the years ended December 31, 2003 and December 31, 2002 and the accompanying notes have been presented in U.S. dollars and prepared in accordance with U.S. GAAP. In addition, as a subsidiary of Petrobras, we also prepare
financial statements in accordance with accounting practices adopted in Brazil.



Overview



We are a wholly-owned subsidiary of
Petrobras. Accordingly, our financial position and results of operations are significantly affected by decisions of our parent company. Our ability to meet our outstanding debt obligations depends on a number of factors, including:



| | Petrobras financial condition and results of operations;
|- | ---------------------------------------------------------



| | the extent to which Petrobras continues to use our services for market purchases of crude oil and oil products;
|- | ---------------------------------------------------------------------------------------------------------------



| | Petrobras willingness to continue to make loans to us and provide us with other types of financial support;
|- | ------------------------------------------------------------------------------------------------------------



| | our ability to access financing sources, including the international capital markets and third-party credit facilities; and
|- | ---------------------------------------------------------------------------------------------------------------------------



| | our ability to transfer our financing costs to Petrobras.
|- | ---------------------------------------------------------



We earn income from:



| | sales of crude oil and oil products to Petrobras;
|- | -------------------------------------------------



| | limited sales of crude oil and oil products to third parties; and
|- | -----------------------------------------------------------------



| | financial income derived from financing of sales to Petrobras and inter-company loans to Petrobras, investments in marketable securities and other financial instruments.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Our operating expenses include:



| | cost of sales, which is comprised mainly of purchases of crude oil and oil products; and
|- | ----------------------------------------------------------------------------------------



| | financial expense, mainly from interest on our lines of credit and capital markets indebtedness, securitization of receivables and inter-company loans from Petrobras.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our business and financial condition depend to a
large degree on the international prices for crude oil (which are very volatile), the volume of crude oil and oil products that Petrobras purchases from us and the volume of bunker fuel, fuel oil and other products PFL sells in connection with
Petrobras exports prepayment program.



Purchases and Sales of Crude
Oil and Oil Products



We typically purchase crude oil
and oil products in transactions with payment terms of approximately 30 days. Petrobras typically pays for shipments of crude oil and oil products that we sell to it over a period of up to 270 days, which allows Petrobras sufficient time to assemble
the necessary documentation under Brazilian law to commence the payment process for its shipments. During this period, we typically finance the purchase of crude oil and oil products through either funds previously provided by Petrobras or
third-party trade finance arrangements. In years prior to 2003, financial income from sales to Petrobras was calculated according to a formula based on LIBOR, which was designed to reimburse us for estimated financing expenses we incurred in
connection with these sales. In January 2003, the interest component of this formula was modified from a formula based on LIBOR to a formula based on a rate which more fully passes on our average costs of capital to Petrobras. The difference between
the amount we pay for crude oil and oil products and the amount Petrobras pays for that same crude oil and oil products is deferred and recognized as part of our financial income on a straight-line basis over the period in which Petrobras
payments to us come due.



Results of Operations



Results of Operations for the year ended December 31, 2003 (2003) compared
to the year ended December 31, 2002 (2002).



Net Loss



We had a net loss of U.S.$3.0 million in 2003, as
compared to a net loss of U.S.$65.5 million in 2002.



Sales of Crude Oil and
Oil Products and Services



Our sales of crude oil and oil
products and services increased 9.2% to U.S.$6,975.5 million in 2003, from U.S.$6,390.2 million in 2002, primarily due to a 16.5% increase in the average price of Brent crude oil from U.S.$24.76 per barrel in 2002 to U.S.$28.84 per barrel in 2003, a
9.7% increase in the volume of sales made by our subsidiary, PFL, in connection with Petrobras exports prepayment program and due to the favorable effects of the Iraq war and the effects, primarily in the first quarter, of the political and
economic crisis in Venezuela on international prices and supplies of crude oil and oil products. The increase was partially offset by a reduction in the volume of oil products we sold to Petrobras as a result of the contraction in the Brazilian
economy and the consequent loss of purchasing power among the population.



Lease income



As a result of the transfer of
PNBV to Petrobras, we had no income from leases in 2003. In 2002, our lease income was U.S.$36.1 million. See Note 1 to our audited consolidated financial statements.



Cost of Sales



Cost of sales increased 8.6% to U.S.$6,920.1 million in 2003, from U.S.$6,371.5 million in 2002, primarily due to the 16.5% increase in the average price
of Brent crude oil in 2003, as compared to 2002, and the 9.7% increase in sales made by our subsidiary PFL in connection with Petrobras exports prepayment program. The increase was partially offset by a reduction in the volume of oil products
sold to Petrobras as a result of lower demand for such products in the Brazilian market.



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##### Table of Contents

Lease Expense



As a result of the transfer of PNBV to Petrobras, we had no expense related to leases in 2003. In 2002, our lease expense was U.S.$24.0 million. See Note
1 to our audited consolidated financial statements.



Selling, General
and Administrative Expenses



Our selling, general and
administrative expenses consist primarily of shipping costs and fees for services, including accounting and legal services. These expenses increased to U.S.$18.6 million in 2003, as compared to U.S.$1.2 million in 2002, of which U.S.$17.1 million
consisted of shipping expenses. In 2003, Petrobras management decided to assign to us the responsibility for payment of shipping expenses previously paid by Petrobras. From this point forward, we expect shipping costs to figure permanently as
part of our selling, general and administrative expenses.



Gross Profit



Our gross profit reflects profits from our third-party
sales of crude oil and oil products and services (since we record profits from sales of crude oil and oil products to Petrobras as financial income). Our gross profit increased 24.3% to U.S.$36.8 million in 2003, as compared to U.S.$29.6 million in
2002, as a result of the 16.5% increase in the average price of Brent crude oil from U.S.$24.76 per barrel in 2002 to U.S.$28.84 per barrel in 2003 and due to the favorable effects of the Iraq war and the effects, primarily in the first quarter, of
the political and economic crisis in Venezuela on international prices and supplies of crude oil and oil products.



Financial Income



Our financial income consists of the financing of sales to Petrobras and inter-company loans to Petrobras, investments in marketplace securities and other
financial instruments. Our financial income increased to U.S.$442.9 million in 2003, from U.S.$219.6 million in 2002, primarily due to an increase in loans to related parties and interest received as a result of increases in the time period
previously agreed with Petrobras for receipt of payments related to sales of crude oil and oil products to Petrobras from up to 120 days in early 2002 to up to 270 days beginning in May 2002 and continuing for the remainder of 2002 and throughout
all of 2003, increases in the periods of time for receipt of payments beyond the time periods previously agreed with Petrobras and a modification of the interest component of the payment formula by which Petrobras reimburses us for our financing
costs. In January 2003, this formula was adjusted in order to more fully pass on our average costs of capital to Petrobras.



Financial Expense



Our financial expense consists of interest paid and accrued on our outstanding indebtedness and other fees associated with our issuance of debt. Our
financial expense increased 53.3% to U.S.$482.7 million in 2003, as compared to U.S.$314.7 million in 2002, primarily due to the increase in the amount of our long-term indebtedness. Our long-term indebtedness increased to U.S.$5,825.3 million at
December 31, 2003, as compared to U.S.$3,248.7 million at December 31, 2002. The increase in financial expense was partially offset by the lower average interest rate on our outstanding debt.



Results of Operations for the year ended December 31, 2002 (2002) compared
to the year ended December 31, 2001 (2001).



Net Loss



We had a net loss of U.S.$65.5 million in 2002, as
compared to a net loss of U.S.$20.3 million in 2001.



Sales of Crude
Oil and Oil Products and Services



Our sales of crude oil
and oil products (including sales of imported crude oil and oil products) and services remained relatively stable, increasing 2.1% to U.S.$6,390.2 million in 2002, from U.S.$6,260.5 million in 2001, primarily due to a slight increase in the average
price of Brent crude oil from U.S.$24.42 per barrel in 2001 to U.S.$24.76 per barrel in 2002 and sales made by our subsidiary PFL in connection with Petrobras exports prepayment program. This increase was partially offset by a reduction in the
volume of oil products we sold to Petrobras as a result of the deregulation of the Brazilian market for oil products.



23



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##### Table of Contents

Lease income



In 2002, our lease income increased to U.S.$36.1 million from U.S.$10.7 million in 2001. This increase is mainly due to the fact that we derived revenue
in 2001 exclusively from operating leases of vessels, while in 2002, we also derived revenue from direct financing leases of equipment and platforms that we acquired in 2002.



Cost of Sales



Our cost of sales remained relatively stable, increasing 1.9% to U.S.$6,371.5 million in 2002, as compared to U.S.$6,253.0 million in 2001, primarily due
to a slight increase in the average price of Brent crude oil in 2002, as compared to 2001, and to sales made by our subsidiary PFL in connection with Petrobras exports prepayment program. This increase was partially offset by a reduction in
the volume of oil products sold to Petrobras as a result of lower demand for such products in the Brazilian market..



Lease Expense



Our lease expense increased to U.S.$24.0 million in 2002 from U.S.$10.5 million in 2001. This increase was mainly due to the fact that we incurred lease
expenses in 2001 exclusively from operating leases of vessels, while in 2002, we also incurred lease expense from direct financing leases of equipment and platforms.



Selling, General and Administrative Expenses



Our selling, general and administrative expenses increased to U.S.$1.2 million in 2002, as compared to U.S.$0.1 million in
2001, as a result of fees for financial, consulting and other advisory services.



Gross Profit



Our gross profit increased to
U.S.$29.6 million in 2002, as compared to U.S.$7.6 million in 2001, due primarily to U.S.$12.1 million in profits generated by a leasing transaction for platforms, equipment and vessels with Petrobras, as well as, to a lesser extent, our ability to
achieve more favorable terms on our third-party sales.



Financial Income



Our financial income increased 38.3% to U.S.$219.6
million in 2002, as compared to U.S.$158.8 million in 2001, primarily due to an increase in loans to related parties and interest received as a result of increases in the time period for receipt of payments related to sales of crude oil and oil
products to Petrobras from 120 days to 270 days in the second quarter of 2002 and increases in the periods of time for receipt of payments beyond the time periods previously agreed with Petrobras. The increase in financial income was partially
offset by a reduction in LIBOR, which, in 2002 and 2001, was a component of the formula designed to reimburse us for financing expenses incurred, and a reduction in volume of sales of oil products to Petrobras.



Financial Expense



Financial expense increased 68.2% to U.S.$314.7 million in 2002, as compared to U.S.$187.1 million in 2001, primarily due to
the increase in the amount of our long-term indebtedness.



Liquidity and
Capital Resources



Overview



We finance our oil trading activities principally from loans from commercial
banks, including lines of credit and commercial paper programs, as well as through inter-company loans from Petrobras and the issuance of notes in the international capital markets. In our opinion, our strong cash position at hand and our ability to
access international capital markets will continue to allow us to meet our anticipated cash needs and financial obligations.



24



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##### Table of Contents

As an offshore non-Brazilian company, we are not legally obligated to receive prior approval from the
Brazilian National Treasury to incur debt or register debt with the Central Bank. As a matter of policy, however, the issuance of any debt is recommended by any of Petrobras Chief Financial Officer, Executive Board or Board of Directors,
depending on the aggregate principal amount and the tenor of the debt to be issued.



Sources of Funds



Our Cash Flow



At December 31, 2003, we had cash and cash equivalents of U.S.$1,262.0
million, as compared to U.S.$260.6 million at December 31, 2002. This increase in cash was primarily a result of our issuances of notes in the international capital markets in 2003. Our operating activities used net cash of U.S.$1,306.6 million in
2003, as compared to U.S.$2,038.9 million in 2002, primarily as a result of a decrease in outstanding receivables from sales to related parties. Our investing activities used net cash of U.S.$86.5 million in 2003, as compared to U.S.$1,093.1 million
in 2002, primarily as a result of a decrease in loans to related parties. Our financing activities provided net cash of U.S.$2,394.6 million in 2003, as compared to U.S.$3,344.0 million in 2002. This decrease was primarily the result of an increase
in principal payments of loans we obtained from related parties.



Accounts
Receivable



Accounts receivable from related parties increased
4.7% from U.S.$4,837.1 million at December 31, 2002 to U.S.$ 5,064.5 million at December 31, 2003, as a result of an increase in the interest component of the payment formula by which Petrobras reimburses us for our financing costs, increases in the
period of time for receipt of payments beyond the time periods previously agreed with Petrobras and the 16.5% increase in the average price of Brent crude oil from U.S.$24.76 per barrel in 2002 to U.S.$28.84 per barrel in 2003. This increase was
partially offset by the lower volume of oil products we sold to Petrobras in 2003.



Our Short-Term Borrowings



Our short-term borrowings
are denominated in U.S. dollars and consist of lines of credit, commercial paper and loans payable. At December 31, 2003, we had access to short-term capital through U.S.$274.6 million in guarantees, primarily in the form of irrevocable letters of
credit supporting oil imports, as compared to U.S.$380.6 million in guarantees at December 31, 2002. At December 31, 2003 we had accessed U.S.$1,015.3 million in lines of credit, including the current portion of long-term lines of credit, as
compared to U.S.$366.1 million accessed at December 31, 2002. The weighted average annual interest rate on these short-term borrowings was 3.9% at December 31, 2003, as compared to 3.4% at December 31, 2002. At December 31, 2003 and 2002, we had
fully utilized all available lines of credit for purchase of imports.



We renewed our commercial paper program in May 2003 in an aggregate principal amount of U.S.$160 million in order to finance our working capital requirements. Our 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 Petrobras. At December 31, 2003 and December 31, 2002, we had no commercial paper notes outstanding.



Our loans payable to related parties, which are principally composed of notes
payable to Petrobras, decreased 33.8% from U.S.$3,688.2 million at December 31, 2002 to U.S.$2,442.8 million at December 31, 2003, as a result of our utilization of the net proceeds from the issuance of U.S.$400 million in Global Step-up Notes and
U.S.$1,500 million in Global Notes to finance the purchase of crude oil and oil product imports and to repay existing trade-related and inter-company loans and from the fact that, as a result of the transfer of PNBV to Petrobras in January 2003, the
liabilities of PNBV are not included in our balance sheet for 2003.



Our
Long-Term Borrowings



At December 31, 2003, we had outstanding
U.S.$377.5 million in long-term lines of credit due between 2004 and 2006, as compared to U.S.$460.3 million at December 31, 2002. We also had outstanding:



| |  | U.S.$1,550 million in three series of long-term Senior Notes due between 2007 and 2011. We have subsequently repurchased U.S.$8.5 million of these Notes.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  | U.S.$338.4 million in 4.75% Senior Exchangeable Notes due 2007, issued on October 17, 2002, in connection with Petrobras purchase of Perez Companc S.A. (currently known as
Petrobras Energia Participaciones  PEPSA). In exchange, we received notes issued by Petrobras International Braspetro BV (PIB BV), a related party, in the same amount, terms and conditions as the Senior Exchangeable Notes. In March 2004, the
amount of Senior Exchangeable Notes outstanding was reduced to approximately U.S.$329.7 million because of unexpected environmental liabilities under the terms of a settlement agreement with the former owners of Perez Companc. In connection with the
acquisition of Perez Companc, we also provided PIB BV with a loan for U.S.$738.9 million, with an interest rate of 4.79%.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | U.S.$400 million in Global Step-up Notes due April 2008. The notes will bear interest from March 31, 2003 at a rate of 9.00% per annum until April 1, 2006 and at a rate of 12.375%
per annum thereafter, with interest payable semiannually. We used the proceeds from this issuance principally to repay trade-related debt and inter-company loans. We have subsequently repurchased U.S.$19.9 million of these Notes.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | U.S.$1,500 million in Global Notes, of which U.S.$500 million were issued on July 2, 2003 and are due July 2013. The notes will bear interest at the rate of 9.125% per annum,
payable semiannually. In September 2003, we issued an additional U.S.$250 million in Global Notes, which form a single fungible series with our U.S.$500 million Global Notes due July 2013. The proceeds from these issuances were used principally to
repay trade-related debt and inter-company loans. On December 10, 2003, we issued an additional U.S.$750 million of Global Notes due December 2018. The notes will bear interest at the rate of 8.375% per annum, payable semiannually. The proceeds from
the issuance of these notes were used principally for general corporate purposes, including the financing of the purchase of oil product imports and the repayment of existing trade-related debt. We have subsequently repurchased U.S.$18.4 million of
the Global Notes.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | U.S.$1,767.3 ($60.5 million current portion) million in connection with Petrobras exports prepayment program. On December 21, 2001, the Trust (PF Export) issued to PFL, our
subsidiary, U.S.$750 million of Senior Trust Certificates in four series and U.S.$150 million of Junior Trust Certificates. In addition, on May 21, 2003, the Trust issued U.S.$550 million in 6.436% Senior Trust Certificates due 2015, and on May 21,
2003, the Trust issued U.S.$200 million in 3.748% Senior Trust Certificates due 2013 and an additional U.S.$150 million of Junior Trust Certificates. We have subsequently repurchased U.S.$7.2 million of the Senior Trust Certificates.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following table shows the sources of our
current and long-term debt at December 31, 2003 and December 31, 2002:



CURRENT AND LONG-TERM DEBT



|                           |  |                               |         |                   |       |         |  |           |       |  |       |        
|-------------------------- |  | ----------------------------- | ------- | ----------------- | ----- | ------- |  | --------- | ----- |  | ----- | -------
|                           |  | December 31, 2003             |         | December 31, 2002
|                           |  | (in millions of U.S. dollars)
|                           |  | Current                       |         | Long-term         |       | Current |  | Long-term
|Financing institutions     |  | U.S.$                         | 1,015.3 |                   | U.S.$ | 377.5   |  | U.S.$     | 366.1 |  | U.S.$ | 460.3  
|Senior notes               |  |                               | 53.6    |                   |       | 1,541.5 |  |           | 53.6  |  |       | 1,550.0
|Global Step-up Notes       |  |                               | 9.0     |                   |       | 380.1   |  |           |       |  |       |        
|Global Notes               |  |                               | 4.4     |                   |       | 1,488.1 |  |           |       |  |       |        
|Sale of future receivables |  |                               | 61.8    |                   |       | 1,699.7 |  |           | 0.6   |  |       | 900.0  
|Senior exchangeable notes  |  |                               | 3.8     |                   |       | 338.4   |  |           | 3.3   |  |       | 338.4  
|                           |  |                               |         |                   |       |         |  |           |       |  |       |        
|                           |  | U.S.$                         | 1,147.9 |                   | U.S.$ | 5,825.3 |  | U.S.$     | 423.6 |  | U.S.$ | 3,248.7
|                           |  |                               |         |                   |       |         |  |           |       |  |       |        



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##### Table of Contents

The following table shows the sources of our capital markets debt outstanding at December 31, 2003:



CAPITAL MARKETS DEBT OUTSTANDING(1)



|                                                    |  |                                               |      
|--------------------------------------------------- |  | --------------------------------------------- | -----
|Notes                                               |  | Principal Amount(in millions of U.S. dollars)
|9.125% Senior Notes due 2007(2) (6)                 |  | U.S.$                                         | 500  
|4.750% Senior Exchangeable Notes due 2007(3)        |  |                                               | 338  
|9.875% Senior Notes due 2008(2) (6)                 |  |                                               | 450  
|6.750% Senior Trust Certificates due 2010(4)        |  |                                               | 95   
|Floating Rate Senior Trust Certificates due 2010(4) |  |                                               | 55   
|9.750% Senior Notes due 2011(2) (6)                 |  |                                               | 600  
|6.600% Senior Trust Certificates due 2011(4)        |  |                                               | 300  
|Floating Rate Senior Trust Certificates due 2013(4) |  |                                               | 300  
|3.748% Senior Trust Certificates due 2013(4)        |  |                                               | 200  
|6.436% Senior Trust Certificates due 2015(4)        |  |                                               | 517  
|Global Step-up Notes due 2008(5)                    |  |                                               | 400  
|9.125% Global Notes due 2013(2) (7)                 |  |                                               | 750  
|8.375% Global Notes due 2018(2) (7)                 |  |                                               | 750  
|                                                    |  |                                               |      
|Total                                               |  | U.S.$                                         | 5,255
|                                                    |  |                                               |      

---

|(1) | Does not include Junior Trust Certificates issued by PF Export Trust in connection with Petrobras exports prepayment program, because we are the beneficiary of such Junior
Trust Certificates.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Issued by us, with support from Petrobras through a standby purchase agreement.
|--- | -------------------------------------------------------------------------------

|(3) | Issued by us on October 17, 2002 in connection with Petrobras acquisition of Perez Companc S.A.
|--- | ------------------------------------------------------------------------------------------------

|(4) | Issued in connection with Petrobras exports prepayment program. We have subsequently repurchased U.S.$7.2 million.
|--- | -------------------------------------------------------------------------------------------------------------------

|(5) | The Global Step-up Notes bear interest from March 31, 2003 at a rate of 9.00% per year until April 1, 2006 and at a rate of 12.375% per year thereafter, with interest payable
semi-annually, and were issued by us with support from Petrobras through a standby purchase agreement. We have subsequently repurchased U.S.$19.9 million.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Of the aggregate U.S.$1550.0 million of Senior Notes, we have repurchased U.S.$8.4 million.
|--- | -------------------------------------------------------------------------------------------

|(7) | Of the aggregate U.S.$1500.0 million of Global Notes, we have repurchased U.S.$18.4 million.
|--- | --------------------------------------------------------------------------------------------



Off-Balance Sheet Arrangements



At December 31, 2003, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on our financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.



Uses of Funds



We primarily utilize funds to finance our oil trade activities and to repay our outstanding indebtedness. The following table sets forth our contractual obligations as of December 31, 2003, and the period in which the contractual
obligations come due.



|                                                 |  |                                                      |  |                  |  |           |  |           |  |                  
|------------------------------------------------ |  | ---------------------------------------------------- |  | ---------------- |  | --------- |  | --------- |  | -----------------
|                                                 |  | Payments due by period (in millions of U.S. dollars)
|Contractual Obligations as of December 31,
2003: |  | Total                                                |  | less than 1 year |  | 1-3 years |  | 3-5 years |  | more than 5 years
|Long-term debt*                                  |  | 6,049.3                                              |  | 224.0            |  | 668.2     |  | 1985.0    |  | 3,172.1          
|Purchase obligations                             |  | 290.0                                                |  | 197.0            |  | 15.0      |  | 14.0      |  | 64.0             
|                                                 |  |                                                      |  |                  |  |           |  |           |  |                  
|Total                                            |  | 6,339.3                                              |  | 421.0            |  | 683.2     |  | 1,999.0   |  | 3,236.1          

---

|* | includes Junior Trust Notes
|- | ---------------------------



We have entered into several short-term contracts which collectively obligate us to purchase a minimum of approximately 139,344 barrels of crude oil and
oil products per day at market prices.



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Critical Accounting Policies



We believe that there are no critical accounting policies in connection with the preparation of our financial statements. As
an offshore finance company, our accounting is limited to basic debt transactions and the accounting for revenues and costs associated with oil product exports and imports.



Recent Accounting Pronouncements



In January 2003, FASB issued Interpretation No. 46 - Consolidation of Variable Interest Entities, which was later revised in December 2003 (FIN 46-R). FIN
46-R provides guidance on when certain entities should be consolidated or the interests in those entities should be disclosed by enterprises that do not control them through majority voting interest. Under FIN 46-R, variable interest entities are
required to be consolidated by an enterprise that has a controlling financial interest through an obligation to absorb the majority of expected losses or the right to receive the majority of expected returns. Entities identified with these
characteristics are called variable interest entities and the interest that enterprises have in these entities are called variable interests. These interests may derive from certain guarantees, leases, loans or other arrangements that result in
risks and rewards, which finance the variable interest entities, despite the voting interest in the entities.



The interpretation requires that if a business enterprise has a controlling financial interest in a variable entity, the assets, liabilities and results
of the activities of the variable interest entity must be included in the consolidated financial statements with those of the business enterprise. This interpretation applies immediately to variable interest entities created after January 31, 2003.
FIN 46-R must be adopted for variable interest entities created before February 1, 2003, at the end of the first interim or annual reporting period ended after March 15, 2004.



We have concluded that we do not have any entities or transactions that are subject to the requirements of FIN 46-R.



Item 6. Directors, Senior Management and Employees



We are managed by a board of directors, consisting of three members, and by our executive officers. The board of directors is responsible for preparing our year-end accounts, convening shareholders meetings and
reviewing and monitoring our financial performance and strategy. Although not required by our bylaws, it is our policy that the Chairman and all of our executive officers be Petrobras employees. All of the current executive officers are experienced
managers from Petrobras, some of whom have served on the boards of directors of Petrobras subsidiaries and in representative offices abroad. The executive officers work as a board and are responsible for our day-to-day management.



Our board of directors serve indefinite terms and can be removed with or
without cause. The following table sets forth certain information about our board of directors.



BOARD OF DIRECTORS



|                             |  |                  |  |          |  |                    
|---------------------------- |  | ---------------- |  | -------- |  | -------------------
|Name                         |  | Date of Birth    |  | Position |  | Year of Appointment
|Almir Guilherme Barbassa     |  | May 19, 1947     |  | Chairman |  | 1999               
|Marcos Antonio Silva Menezes |  | March 24, 1952   |  | Director |  | 2003               
|Nilo Carvalho Vieira Filho   |  | October 26, 1954 |  | Director |  | 2003               



Almir Guilherme
Barbassa.Mr. Barbassa has been our Chairman and Executive Manager of Corporate Finance of Petrobras since July 12, 1999. He joined Petrobras in 1974 and served in Braspetro as Financial Manager in the Middle East, North Africa, the United
States and Brazil, and as Financial Director from 1993 to 1999. In addition, he was a professor in the economics department of the Petrópolis Catholic University and of the Faculdades Integradas Bennett from 1973 to 1979.



Marcos Antonio Silva Menezes. Mr. Menezes has been our Executive
Manager of the Accounting Department of Petrobras since 1998. He joined Petrobras in 1976 and served as Adjunct Superintendent of the former SEFIN  Financial Services (1995-1998). He currently serves as a member of the fiscal council
Fundação de Seguridade Social - PETROS(since 1995) and Companhia de Gás da Bahia - BAHIAGÁS(since 2003), as well as the chairman of the fiscal council of Instituto Brasileiro de Petróleo e
Gás(since 1998) and Organização Nacional das Indústrias de Petróleo - ONIP(since 1999).



Nilo Carvalho Vieira Filho. Mr. Vieira has been our Executive Manager of Marketing and Trading since June 25, 2004. He joined Petrobras in March
1985 as a supply engineer. Since then, he has occupied the positions of supply manager at Petrobras (1990-1994), head of external trading (1995-1999), Director of Braspetro (2000-2001) and Director of Eg3 in Argentina (2002-2004).



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##### Table of Contents

The following table sets forth certain information about our executive officers.



EXECUTIVE OFFICERS



|                                  |  |                    |  |                   
|--------------------------------- |  | ------------------ |  | ------------------
|Name                              |  | Date of Birth      |  | Position          
|Cláudia Valéria Carreiro de Souza |  | March 8, 1963      |  | Commercial Manager
|Daniel Lima de Oliveira           |  | December 29, 1951  |  | Financial Manager 
|Mariângela Monteiro Tizatto       |  | August 9, 1960     |  | Accounting Manager
|Nilton Antônio de Almeida Maia    |  | June 21, 1957      |  | Legal Manager     
|Gérson Luiz Gonçalves             |  | September 29, 1953 |  | Auditor Manager   
|Isabela Cesário de Faria Alvim    |  | July 11, 1961      |  | Secretary         



Cláudia
Valéria Carreiro de Souza.Ms. Carreiro became an executive officer of our company on March 19, 2000. She joined Petrobras in 1990 and has served as our Commercial Department Manager for Petroleum Products Supply and Trading since 1994.



Daniel Lima de Oliveira. Mr. Lima de Oliveira became an
executive officer of our company on April 19, 2000. He joined Petrobras in 1976 as a supply engineer in the Commercial Department. In 1982 he moved to the Financial Department where he worked in the short-term credit division and served as Assistant
to the General Manager. From 1984 until 1988, he served as Financial Manager of Petrobras London office. From 1988 to 1999, he served as a manager at Braspetro and a financial manager of the New York office. Since January 2002, he has been a
director of Petrobras International Braspetro BV-PIB BV and Braspetro Oil Services Company-BRASOIL. He has served as our financial manager since 1999.



Mariângela Monteiro Tizatto.Ms. Tizatto has served as our Accounting Manager since April 4, 1998. She joined Petrobras in 1989 as an
accountant in the Accounting Department. Since 1999, she has served as Petrobras General Manager for Accounting Operations. From 1990 to 1995, she was Manager of Petrobras Consolidated Accounting System, and from 1995 to 1999, she served
as Manager of Petrobras Division of Corporate Accounting. Before joining Petrobras, Ms. Tizatto was Manager of Auditing for Deloitte Touche Tohmatsu, where she worked for seven years. She was also a professor of advanced accounting at the
Faculdade Moraes Junior in Rio de Janeiro (1990).



Nilton
Antônio de Almeida Maia.Mr. Maia has served as our Legal Manager since April 19, 2000. He joined Petrobras in 1984 as an internal auditor. He has served as a tax consultant to Petrobras Legal Department, and since early 2000, has
served as General Manager for the Finance and Tax Division. Mr. Maia currently serves as General Counsel for Petrobras. He has completed post-graduate degrees in law, with specializations in energy and tax law, from the Universidade Cândido
Mendes and the Universidade Estácio de Sá.



Gerson Luiz Gonçalves.Mr. Gonçalves has served as our Auditor Manager since April 19, 2000. He joined the Internal Audit Department of Petrobras in 1976 and has been Petrobras Executive Manager for Internal
Auditing for the last six years. He is responsible for all of Petrobras internal accounting control activities. Mr. Gonçalves is a member of the Brazilian Institute of Internal Auditors (AUDIBRA) and of the United States Institute
of Internal Auditors (IIA).



Isabela Cesário de Faria
Alvim. Ms. Alvim has served as our Secretary since April 2004. She joined Petrobras in 1984 as an analyst for Maritime Transport. Since 1995 she has been working in the Finance Department.



Compensation of Directors and Executive Officers



Our directors and executive officers are paid by Petrobras in respect of
their function as Petrobras employees, but they do not receive any additional compensation, pension or other benefits from us or Petrobras in respect of their functions as our directors or officers, as the case may be.



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Board Practices



The dates of appointment of our current directors and executive officers are set forth above under Item 6. Directors and Senior Management and
Employees. Our directors and executive officers do not have set terms of appointment. We have not entered into any service or employment contracts with any of our directors and executive officers. We do not have any audit or remuneration
committees.



Employees



With the exception of fourteen employees of PEL, our personnel consists
solely of Petrobras employees, and we rely on Petrobras to provide all administrative functions.



Share Ownership



As of
June 16, 2004, we had 50,000 shares of common stock outstanding. All of our issued and outstanding shares of common stock are owned by Petrobras.



Item 7. Major Shareholders and Related Party Transactions



We are a wholly-owned subsidiary of Petrobras. We have numerous transactions with Petrobras and other affiliated companies in the ordinary course of business, as our primary function is to purchase crude oil and oil
products for sale to Petrobras.



Transactions with related
parties resulted in the following balances:



|                                          |  |                               |         |                   |   |         |  |             |         |  |   |        
|----------------------------------------- |  | ----------------------------- | ------- | ----------------- | - | ------- |  | ----------- | ------- |  | - | -------
|                                          |  | December 31, 2003             |         | December 31, 2002
|                                          |  | Assets                        |         | Liabilities       |   | Assets  |  | Liabilities
|                                          |  | (in millions of U.S. dollars)
|Assets                                    |  |                               |         |                   |   |         |  |             |         |  |   |        
|Current                                   |  |                               |         |                   |   |         |  |             |         |  |   |        
|Accounts receivable                       |  | $                             | 5,064.5 |                   |   |         |  | $           | 4,837.1 |  |   |        
|Notes receivable(1)                       |  |                               | 1,388.0 |                   |   |         |  |             | 1,157.9 |  |   |        
|Marketable Securities                     |  |                               | 18.0    |                   |   |         |  |             | 51.9    |  |   |        
|Exports Prepayment                        |  |                               | 72.5    |                   |   |         |  |             | 1.2     |  |   |        
|Other                                     |  |                               |         |                   |   |         |  |             | 1.0     |  |   |        
|Other non current                         |  |                               |         |                   |   |         |  |             |         |  |   |        
|Notes receivable                          |  |                               | 338.4   |                   |   |         |  |             | 473.7   |  |   |        
|Exports prepayment                        |  |                               | 1,406.9 |                   |   |         |  |             | 750.0   |  |   |        
|Net investment in direct financing Leases |  |                               |        |                   |   |         |  |             | 832.3   |  |   |        
|Marketable securities                     |  |                               |        |                   |   |         |  |             | 2.4     |  |   |        
|Other                                     |  |                               |        |                   |   |         |  |             | 3.3     |  |   |        
|Liabilities                               |  |                               |         |                   |   |         |  |             |         |  |   |        
|Current                                   |  |                               |         |                   |   |         |  |             |         |  |   |        
|Trade accounts Payable                    |  |                               |         |                   |   | 271.0   |  |             |         |  |   | 292.0  
|Notes payable(1)                          |  |                               |         |                   |   | 2,442.8 |  |             |         |  |   | 3,688.2
|Unearned income                           |  |                               |         |                   |   | 61.9    |  |             |         |  |   | 48.6   
|                                          |  |                               |         |                   |   |         |  |             |         |  |   |        
|Total                                     |  | $                             | 8,288.3 |                   | $ | 2,775.7 |  | $           | 8,110.8 |  | $ | 4,028.8
|                                          |  |                               |         |                   |   |         |  |             |         |  |   |        
|Current                                   |  | $                             | 6,543.0 |                   | $ | 2,775.7 |  | $           | 6,049.1 |  | $ | 4,028.8
|                                          |  |                               |         |                   |   |         |  |             |         |  |   |        
|Long-term                                 |  | $                             | 1,745.3 |                   |   |         |  | $           | 2,061.7 |  |   |        
|                                          |  |                               |         |                   |   |         |  |             |         |  |   |        

---

|(1) | Our notes receivable from and payable to Petrobras bear interest at LIBOR plus 3.0% per year.
|--- | ---------------------------------------------------------------------------------------------



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The principal transactions with related parties are as follows:



|                                                 |  |                               |         |         |      |          |        |      |         |         |  |        |          |         |  |   |         |  |   |          |  
|------------------------------------------------ |  | ----------------------------- | ------- | ------- | ---- | -------- | ------ | ---- | ------- | ------- |  | ------ | -------- | ------- |  | - | ------- |  | - | -------- | -
|                                                 |  | Years ended December 31,      |        
|                                                 |  | 2003                          |         |         | 2002 |          |        | 2001 |        
|                                                 |  | (in millions of U.S. dollars) |        
|                                                 |  | Income                        |         | Expense |      |          | Income |      | Expense |         |  | Income |          | Expense | 
|Sales of crude oil and oil products and services |  |                               |         |         |      |          |        |      |         |         |  |        |          |         |  |   |         |  |   |          |  
|PETROBRAS                                        |  | $                             | 3,618.8 |         |      |          |        |      | $       | 4,208.2 |  |        |          |         |  | $ | 5,115.2 |  |   |          |  
|REFAP S.A.                                       |  |                               | 794.3   |         |      |          |        |      |         | 680.5   |  |        |          |         |  |   | 738.9   |  |   |          |  
|Petrobras America, Inc.PAI                      |  |                               | 1,109.9 |         |      |          |        |      |         | 467.7   |  |        |          |         |  |   | 6.4     |  |   |          |  
|BR Distribuidora                                 |  |                               | 4.3     |         |      |          |        |      |         | 4.5     |  |        |          |         |  |   |         |  |   |          |  
|EG3 S.A.                                         |  |                               | 10.0    |         |      |          |        |      |         | 14.6    |  |        |          |         |  |   |         |  |   |          |  
|Others                                           |  |                               | 5.8     |         |      |          |        |      |         |         |  |        |          |         |  |   |         |  |   |          |  
|Cost of sales                                    |  |                               |         |         |      |          |        |      |         |         |  |        |          |         |  |   |         |  |   |          |  
|PETROBRAS                                        |  |                               |         |         |      | (1,670.0 | )      |      |         |         |  |        | (1,212.7 | )       |  |   |         |  |   | (95.3    | )
|Petrobras America, Inc.PAI                      |  |                               |         |         |      | (767.9   | )      |      |         |         |  |        | (947.1   | )       |  |   |         |  |   | (1,320.8 | )
|Braspetro Oil Services CompanyBRASOIL           |  |                               |         |         |      | (87.6    | )      |      |         |         |  |        | (55.2    | )       |  |   |         |  |   | (83.3    | )
|Companhia MEGA S.A.                              |  |                               |         |         |      | (235.9   | )      |      |         |         |  |        | (158.1   | )       |  |   |         |  |   | (148.7   | )
|Eg3 S.A.                                         |  |                               |         |         |      | (74.5    | )      |      |         |         |  |        |          |         |  |   |         |  |   |          |  
|Fronape International Company                    |  |                               |         |         |      |         |        |      |         |         |  |        | (34.2    | )       |  |   |         |  |   | (10.5    | )
|Others                                           |  |                               |         |         |      | (15.5    | )      |      |         |         |  |        | (1.7     | )       |  |   |         |  |   |          |  
|Lease income (expense)                           |  |                               |         |         |      |          |        |      |         |         |  |        |          |         |  |   |         |  |   |          |  
|PETROBRAS                                        |  |                               |        |         |      |         |        |      |         | 22.9    |  |        | (5.7     | )       |  |   |         |  |   |          |  
|Braspetro Oil Services CompanyBRASOIL           |  |                               |        |         |      |         |        |      |         | 13.1    |  |        | (5.2     | )       |  |   |         |  |   |          |  
|Fronape International Company                    |  |                               |        |         |      |         |        |      |         |         |  |        | (13.1    | )       |  |   |         |  |   |          |  
|Selling, general and administrative expense      |  |                               |         |         |      |          |        |      |         |         |  |        |          |         |  |   |         |  |   |          |  
|PETROBRAS                                        |  |                               |         |         |      | (17.1    | )      |      |         |         |  |        |          |         |  |   |         |  |   |          |  
|Financial income                                 |  |                               |         |         |      |          |        |      |         |         |  |        |          |         |  |   |         |  |   |          |  
|PETROBRAS                                        |  |                               | 313.7   |         |      |          |        |      |         | 161.6   |  |        |          |         |  |   | 127.0   |  |   |          |  
|REFAP S.A.                                       |  |                               | 8.8     |         |      |          |        |      |         | 8.2     |  |        |          |         |  |   | 14.4    |  |   |          |  
|Braspetro Oil CompanyBOC                        |  |                               | 14.4    |         |      |          |        |      |         | 6.9     |  |        |          |         |  |   | 5.0     |  |   |          |  
|Braspetro Oil Services CompanyBRASOIL           |  |                               | 9.4     |         |      |          |        |      |         | 5.8     |  |        |          |         |  |   | 3.7     |  |   |          |  
|Fronape International Company                    |  |                               |        |         |      |          |        |      |         | 6.8     |  |        |          |         |  |   | 4.8     |  |   |          |  
|PIB.B.V                                          |  |                               | 51.5    |         |      |          |        |      |         | 10.7    |  |        |          |         |  |   | 0.6     |  |   |          |  
|Marlim                                           |  |                               | 3.3     |         |      |          |        |      |         | 2.0     |  |        |          |         |  |   |         |  |   |          |  
|Others                                           |  |                               | 0.6     |         |      |          |        |      |         |         |  |        |          |         |  |   |         |  |   |          |  
|Financial expense                                |  |                               |         |         |      |          |        |      |         |         |  |        |          |         |  |   |         |  |   |          |  
|PETROBRAS                                        |  |                               |         |         |      | (111.0   | )      |      |         |         |  |        | (55.6    | )       |  |   |         |  |   | (52.0    | )
|Braspetro Oil Services CompanyBRASOIL           |  |                               |         |         |      | (0.9     | )      |      |         |         |  |        | (5.7     | )       |  |   |         |  |   | (15.4    | )
|                                                 |  |                               |         |         |      |          |        |      |         |         |  |        |          |         |  |   |         |  |   |          |  
|Total                                            |  | $                             | 5,944.8 |         | $    | (2,980.4 | )      |      | $       | 5,613.5 |  | $      | (2,494.3 | )       |  | $ | 6,016.0 |  | $ | (1,726.0 | )
|                                                 |  |                               |         |         |      |          |        |      |         |         |  |        |          |         |  |   |         |  |   |          |  



Since our inception
there have been no, and there are no proposed, material transactions in which any of our officers and directors is a party. We do not extend any loans to our officers and directors.



Item 8. Financial Information



Consolidated
Statements and Other Financial Information



See Item 18.
Financial Statements.



There is no litigation or
governmental proceeding pending or, to our knowledge, threatened against us or any of our subsidiaries that, if adversely determined, would have a significant effect on our financial position or profitability.



For a description of our dividend distribution policy, see Item 10.
Additional InformationMemorandum and Articles of AssociationRights and Obligations of ShareholdersDividends.



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Item 9. The Offer and Listing



Our common stock is not registered and there is no trading market for it. Our Senior Notes are listed in the Luxembourg Stock Exchange. Our Global-Step Up Notes and our Global Notes have not been listed on any securities exchange. Our other
debt securities have not been listed on any other exchange.



Item 10. Additional Information



MEMORANDUM AND ARTICLES OF ASSOCIATION



The following
represents a summary of certain key provisions of our Memorandum and Articles of Association. The summary does not purport to be a summary of all of the provisions of our Memorandum and Articles of Association nor of all relevant provisions of
Cayman Islands law governing the management and regulation of Cayman Islands exempted companies.



Register



We are an
exempted company incorporated with limited liability in the Cayman Islands under the Companies Law (2002 Revision) with company registration number 76600. We registered and filed our Memorandum and Articles of Association with the Registrar of
Companies on September 24, 1997. We were initially incorporated with the name Brasoil Finance Company, which name was changed by special resolution of our shareholders to Petrobras International Finance Company on September 25, 1997. There has been
no subsequent amendment to our Memorandum and Articles of Association.



Objects and Purposes



Our Memorandum and
Articles of Association grants us full power and authority to carry out the business of petroleum marketing, sales, financing and transportation and any business incidental thereto. As a matter of Cayman Islands law, we cannot trade in the Cayman
Islands except in furtherance of the business carried on outside the Cayman Islands.



Directors



Directors may vote on a proposal,
arrangement or contract in which they are interested. However, interested directors must declare the nature of their interest at a directors meeting. If the interested directors declare their interest, their votes are counted and they are
counted in the quorum of such meeting.



The directors may, in
our name, exercise their powers to borrow money, issue debt securities and to mortgage or charge any of the undertaking or property of our company and are generally responsible for its day-to-day management and administration.



Directors are not required to own shares.



Rights and Obligations of Shareholders



Dividends



Shareholders may declare dividends in a general meeting but the dividends cannot exceed the amount recommended by the
directors. The directors may pay the shareholders interim dividends and may, before recommending any dividend, set aside reserves out of profits. The directors can invest these reserves in their discretion or employ them in our business.



Dividends may be paid in cash or in kind but may only be paid out of
profits or, subject to certain restrictions of Cayman Islands law, a share premium account.



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Voting Rights



Votes may be cast at a general meeting by a show of hands or by a poll. On a vote by a show of hands, each shareholder or shareholder represented by proxy
has one vote. On a vote by a poll, each shareholder or shareholder represented by proxy has one vote for each share owned.



Directors are elected by ordinary resolution by the shareholders at general meetings or by a board resolution of the directors. Shareholders are not
entitled to vote at a general meeting unless calls or other amounts payable on their shares have been paid. In lieu of voting on a matter at a general meeting, the shareholders entitled to vote on that matter may adopt the matter by signing a
written resolution.



Redemption



We may issue shares which are redeemable by us or by our shareholders. The
amount payable on each share in a redemption is its fair value as determined by the directors on the basis of a willing seller and a willing buyer.



Where we have agreed to purchase any share from a shareholder, we will give notice to the other shareholders, if any, specifying the number and class of
shares to be purchased, the name and address of the seller, the price to be paid for the shares and the portion (if any) of that price which is being paid out of capital. The notice will also indicate a date on which the purchase is to be effected
and will invite shareholders other than the seller, if any, to object to the purchase before that date. If any objection is received the redemption request will be refused by the directors or put to a general meeting of the shareholders.



Shareholder Rights Upon Liquidation



If we are liquidated, the liquidator may (in accordance with an ordinary
shareholder resolution):



| | set a fair value on our assets, divide all or part of our assets among the shareholders and determine how the assets will be divided among shareholders or classes of shareholders;
and
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | vest all or part of our assets in trustees.
|- | -------------------------------------------



Shareholders will not be compelled to accept any securities on which there is a liability.



Calls on Shares



Directors may make calls on the shareholders with respect to any amounts unpaid on their shares. Each shareholder shall pay to the company the amounts
called on such shares.



Change to Rights of Shareholders



Shareholders may change the rights of their class of
shares by:



| | getting the written consent of three-fourths of the shareholders of that class; or
|- | ----------------------------------------------------------------------------------



| | passing a special resolution at a meeting of the shareholders of that class.
|- | ----------------------------------------------------------------------------



There are no general limitations on the rights to own shares specified by the articles.



General Meetings



A general meeting may be convened:



| | by the directors at any time; or
|- | --------------------------------



| | by any two shareholders by written request.
|- | -------------------------------------------



Notice of a general meeting is given to all shareholders.



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All business carried out at a general meeting is considered special business except:



| | sanctioning a dividend;
|- | -----------------------



| | consideration of the accounts, balance sheets, and ordinary report of the directors and auditors;
|- | -------------------------------------------------------------------------------------------------



| | appointment and removal of directors; and
|- | -----------------------------------------



| | fixing of remuneration of the auditors.
|- | ---------------------------------------



Shareholder consent is required to carry out special business at a meeting unless notice of the special business is given in the notice of the meeting. A
quorum of shareholders is required to be present at any meeting in order to carry out business. Any two shareholders or one shareholder holding a majority of the shares who are present in person or represented by proxy is a quorum.



There is no requirement under Cayman Islands law to convene an annual meeting
or to convene any general meeting of the shareholders. The directors are permitted to designate any general meeting of shareholders as an annual general meeting.



Liability of Shareholders



In normal circumstances, the liability of any shareholder to us is limited to the amount which such shareholder has agreed to pay in respect of the
subscription of his shares.



Changes in Capital



We may increase our share capital by ordinary resolution. The new shares
will be subject to all of the provisions to which the original shares are subject.



We may also by ordinary resolution:



| | consolidate and divide all or any of our share capital into shares of a larger amount;
|- | --------------------------------------------------------------------------------------



| | sub-divide existing shares into shares of a smaller amount, subject to the provisions of Section 13 of the Companies Law; and
|- | -----------------------------------------------------------------------------------------------------------------------------



| | cancel any shares which, at the date of the resolution, are not held or agreed to be held by any person.
|- | --------------------------------------------------------------------------------------------------------



We may reduce our share capital and any capital redemption reserve by special resolution in accordance with relevant
provision of Cayman Islands law.



Indemnity



Our directors and officers are indemnified out of our assets and funds
against all actions, losses, expenses and liabilities which they incur in the discharge of their respective duties, powers, authorities or discretions. Under our Memorandum of Association, directors and officers are excused from all liability to us,
except for any losses which arise as a result of such partys own dishonesty.



Accounts



Accounts relating to our affairs are
kept in such manner as may be determined from time to time by the directors and may be audited in such manner as may be determined from time to time by us in a general meeting or failing any such determination by the directors. There is, however, no
requirement as a matter of Cayman Islands law to have our accounts audited.



Transfer out of Jurisdiction



We may, by
special resolution of the shareholders, transfer out of the Cayman Islands into any jurisdiction permitting such transfer.



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EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS



There are:



| | no governmental laws, decrees or regulations in Cayman Islands that restrict the export or import of capital, including dividend and other payments to non-resident holders to the
Cayman Islands, and
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | no limitations on the right of nonresident or foreign owners imposed by Cayman Island law or our Memorandum of Association to hold or vote our shares.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------



TAXATION



The following is a summary of principal Cayman Islands, Brazil and United States federal income tax considerations that may
be relevant to the purchase, ownership, and disposition of our debt securities. This summary does not describe any tax consequences arising under the laws of any state, locality or taxing jurisdiction other than the Cayman Islands, Brazil and the
United States.



This summary is based on the tax laws of the
Cayman Islands, Brazil and the United States as in effect on the date of this annual report, as well as regulations, rulings and decisions of the Cayman Islands, Brazil and the United States available on or before the date of this annual report and
now in effect. All of these laws, regulations, rulings and decisions are subject to change, which could apply retroactively and cause statements in this summary to no longer be true. There is no reciprocal tax treaty between the Cayman Islands and
the United States, the Cayman Islands and Brazil or Brazil and the United States.



Cayman Islands Taxation



Under current law, we
are not subject to income, capital, transfer, sales or other taxes in the Cayman Islands.



We were incorporated as an exempted company under the laws of the Cayman Islands on September 24, 1997. We have received an Undertaking as to Tax Concessions pursuant to Section 6 of the Tax Concessions Law (1999
Revision) which provides that, for a period of twenty years from the date thereof no law hereafter enacted in the Cayman Islands imposing any tax or duty to be levied on income or on capital assets, gains or appreciation will apply to any of our
income or property and which is deemed to provide that no tax is to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable on or in respect of shares, debentures or other of
our obligations, or by way of withholding of any part of a payment of principal due under a debenture or other of our obligations.



No Cayman Islands withholding tax applies to distributions by us in respect of the notes. Noteholders are not subject to any income, capital, transfer,
sales or other taxes in the Cayman Islands in respect of their purchase, holding or disposition of the notes.



Noteholders whose notes are brought into or issued in the Cayman Islands will be liable to pay stamp duty of up to C.I.$250 on each note.



Brazil Taxation



The following discussion is a summary of the Brazilian tax considerations relating to an investment in the notes by a
nonresident of Brazil. The discussion is based on the tax laws of Brazil as in effect on the date hereof and is subject to any change in Brazilian law that may come into effect after such date. The information set forth below is intended to be a
general discussion only and does not address all possible tax consequences relating to an investment in the notes.



PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS AS TO THE CONSEQUENCES OF PURCHASING THE NOTES, INCLUDING, WITHOUT LIMITATION, THE CONSEQUENCES OF THE
RECEIPT OF INTEREST AND THE SALE, REDEMPTION OR REPAYMENT OF THE NOTES OR COUPONS.



Generally, an individual, entity, trust or organization domiciled for tax purposes outside Brazil (Nonresidents) is taxed in Brazil only when income is derived from Brazilian sources. Therefore, any gains
or income paid by us in respect of the notes issued by us in favor of Nonresident noteholders are not subject to Brazilian taxes.



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Interest (including OID), fees, commissions, expenses and any other income payable by a Brazilian
resident to a Nonresident are generally subject to income tax withheld at source. As of January 1, 1996, the rate of withholding tax is 15% or such other lower rate as provided for in an applicable tax treaty between Brazil and another country. If
the recipient of the payment is domiciled in a tax haven jurisdiction, as defined by Brazilian tax regulations, the rate will be 25%.



If the payments with respect to the notes are made by a Brazilian source, the noteholders will be indemnified so that, after payment of all applicable
Brazilian taxes collectable by withholding, deduction or otherwise, with respect to principal, interest (including the OID) and additional amounts payable with respect to the notes (plus any interest and penalties thereon), a noteholder will retain
an amount equal to the amounts that such noteholder would have retained had no such Brazilian taxes (plus interest and penalties thereon) been payable. The Brazilian obligor will, subject to certain exceptions, pay additional amounts in respect of
such withholding or deduction so that the holder receives the net amount due.



Gains on the sale or other disposition of the notes made outside Brazil by a Nonresident, other than a branch or a subsidiary of Brazilian resident, to another Nonresident are not subject to Brazilian taxes. Gains
made by a Brazilian Nonresident from the sale or other disposition of notes to a Brazilian resident, subject to certain assumptions and conditions, are not subject to Brazilian taxes.



Generally, there are no inheritance, gift, succession, stamp, or other similar taxes in Brazil with respect to the
ownership, transfer, assignment or any other disposition of the notes by a Nonresident, except for gift and inheritance taxes imposed by some Brazilian states on gifts or bequests by individuals or entities not domiciled or residing in Brazil to
individuals or entities domiciled or residing within such states.



U.S.
Federal Income Taxation



The following summary sets
forth certain United States federal income tax considerations that may be relevant to a holder of a note that is, for U.S. federal income tax purposes, a citizen or resident of the United States or a domestic corporation or that otherwise is subject
to United States federal income tax on a net income basis in respect of the notes. This summary is based upon the Internal Revenue Code of 1986, as amended, or the Code, its legislative history, existing and proposed U.S. Treasury regulations
promulgated thereunder, published rulings by the U.S. Internal Revenue Service, or the IRS, and court decisions, all in effect as of the date of this offering memorandum, all of which authorities are subject to change or differing interpretations,
which changes or differing interpretations could apply retroactively. This summary does not purport to discuss all aspects of United States federal income taxation which may be relevant to particular investors, such as financial institutions,
insurance companies, dealers or traders in securities or currencies, regulated investment companies, tax-exempt organizations, persons holding notes as part of a position in a straddle or as part of a hedging transaction or
conversion transaction for U.S. federal tax purposes, persons that enter into a constructive sale transaction with respect to the notes or U.S. Holders whose functional currency as defined in Section 985 of the Code is not
the U.S. dollar. In addition, this summary does not discuss any foreign, state or local tax considerations. This summary only applies to original purchasers of notes who purchase notes at the original issue price and hold the notes as capital
assets (generally, property held for investment) within the meaning of Section 1221 of the Code.



PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF INVESTING IN THE NOTES, INCLUDING THE EFFECTS OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.



U.S. Holders



Payments of interest



Payments of qualified stated interest (as defined below) on a note (including additional amounts, if any) will generally be taxable to a
U.S. Holder as ordinary interest income when such interest is accrued or received, in accordance with the U.S. Holders regular method of tax accounting. In general, if the issue price of a note is less than the stated
redemption price at maturity by more than a de minimisamount, such Note will be considered to have original issue discount (OID). The issue price of a note is the first price at which a substantial amount of
such notes are sold to investors. The stated redemption price at maturity of a note generally includes all payments other than payments of qualified stated interest (as defined below).



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In general, each U.S. Holder of a note, whether such holder uses the cash or the accrual method of tax
accounting, will be required to include in gross income as ordinary interest income the sum of the daily portions of OID on the note for all days during the taxable year that the U.S. Holder owns the note. The daily portions of OID on a
note are determined by allocating to each day in any accrual period a ratable portion of the OID allocable to that accrual period. In general, in the case of an initial holder, the amount of OID on a note allocable to each accrual period is
determined by (a) multiplying the adjusted issue price, as defined below, of the note at the beginning of the accrual period by the yield to maturity of the note, and (b) subtracting from that product the amount of qualified stated
interest allocable to that accrual period. U.S. Holders should be aware that they generally must include OID in gross income as ordinary interest income for U.S. federal income tax purposes as it accrues, in advance of the receipt of cash
attributable to that income. The adjusted issue price of a note at the beginning of any accrual period will generally be the sum of its issue price (generally including accrued interest, if any) and the amount of OID allocable to all
prior accrual periods, reduced by the amount of all payments other than payments of qualified stated interest (if any) made with respect to such note in all prior accrual periods. The term qualified stated interest generally means stated
interest that is unconditionally payable in cash or property (other than debt instruments of the issuer) at least annually during the entire term of a note at a single fixed rate of interest or, subject to certain conditions, based on one or more
interest indices.



Interest income, including OID, in respect
of the notes will constitute foreign source income for United States federal income tax purposes and, with certain exceptions, will be treated separately, together with other items of passive income or, in the case of certain holders,
financial services income for purposes of computing the foreign tax credit allowable under the United States federal income tax laws. The calculation of foreign tax credits, involves the application complex of rules that depend on a U.S.
Holders particular circumstances. U.S. Holders should consult their own tax advisors regarding the availability of foreign tax credits and the treatment of additional amounts.



Sale or disposition of Notes



A U.S. Holder will generally recognize capital gain or loss upon the sale, exchange, retirement or other disposition of a
note in an amount equal to the difference between the amount realized upon such sale, exchange, retirement or other disposition (other than amounts attributable to accrued qualified stated interest, which will be taxed as such) and such U.S.
Holders tax basis in the note increased by any amounts included in gross income by such U.S. Holders as OID and reduced by any payments other than payments of qualified stated interest on that note. A U.S. Holders tax basis in the note
will generally equal the U.S. Holders cost for the note. Gain or loss realized by a U.S. Holder on the sale, exchange, retirement or other disposition of a note will generally be United States source gain or loss for United States federal
income tax purposes unless it is attributable to an office or other fixed place of business outside the United States and certain other conditions are met. The gain or loss realized by a U.S. Holder will be capital gain or loss, and will be
long-term capital gain or loss if the notes were held for more than one year. The net amount of long-term capital gain recognized by an individual holder before January 1, 2009 generally is subject to taxation at a maximum rate of 15%.



Non-U.S. Holder



Subject to the discussion of backup withholding below, interest on the notes is currently exempt from United
States federal income taxes, including withholding taxes, if paid to a Non-U.S. Holder (as defined below) unless the interest is effectively connected with the conduct by such holder of a United States trade or business. In addition, (i) subject to
the discussion of backup withholding below, a Non-U.S. Holder will not be subject to United States federal income tax on any gain realized on the sale or exchange of a note, provided that such gain is not effectively connected with the conduct by
the holder of a United States trade or business and, in the case of a Non-U.S. Holder who is an individual, such holder is not present in the United States for a total of 183 days or more during the taxable year in which such gain is realized and
certain other conditions are met and (ii) the notes will be deemed to be situated outside the United States for purposes of the United States federal estate tax and will not be includible in the gross estate for purposes of such tax in the case of a
non-resident of the United States who is not a citizen of the United States at the time of death.



As used herein, a Non-U.S. Holder is a holder of the notes that is, with respect to the United States, a foreign corporation or a nonresident
alien individual.



Backup Withholding and Information Reporting



A U.S. Holder may, under certain circumstances, be
subject to backup withholding with respect to certain payments to that U.S. Holder, unless the holder (i) is a corporation or comes within certain other exempt categories, and demonstrates this fact when so required, or (ii) provides a
correct taxpayer identification number, certifies that it is not subject to backup withholding and otherwise



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complies with applicable requirements of the backup withholding rules. Any amount withheld under these rules generally
will be creditable against the U.S. Holders U.S. federal income tax liability. While Non-U.S. Holders generally are exempt from backup withholding, a Non-U.S. Holder may, in certain circumstances, be required to comply with certain information
and identification procedures in order to prove entitlement to this exemption.



SENIOR NOTES



We have
issued three series of Senior Notes in the aggregate amount of U.S.$1,550.0 million. See Item 5. Operating and Financial Review and ProspectsManagements Discussion and Analysis of Results of OperationsLiquidity and Capital
Resources. The terms of each of these series of Senior Notes, and the material agreements which set forth their terms, are substantially similar and are summarized below.



Indentures



We issued each series of Senior Notes pursuant to an indenture between us, as the issuer, and The Bank of New York, as trustee. The terms of the
indentures require us and our subsidiaries, among other things, to:



| | pay all amounts owed by us under the indenture and the notes when such amounts are due, and perform each of our other obligations under the various transaction documents entered
into by it in connection with the issuance of the notes;
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | comply with all applicable laws and maintain all necessary governmental approvals;
|- | ----------------------------------------------------------------------------------



| | pay all uncontested taxes;
|- | --------------------------



| | preserve our existence and maintain our properties;
|- | ---------------------------------------------------



| | maintain adequate insurance;
|- | ----------------------------



| | maintain our books and records in accordance with U.S. GAAP;
|- | ------------------------------------------------------------



| | maintain an office or agency in New York for the purpose of service of process;
|- | -------------------------------------------------------------------------------



| | ensure that the notes continue to be our senior obligations;
|- | ------------------------------------------------------------



| | use proceeds from the issuance of the notes for specified purposes, namely the purchase of oil imports and the repayment of short-term indebtedness;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | give notice to the trustee of any default or event of default under the indenture or certain currency control events in Brazil;
|- | -------------------------------------------------------------------------------------------------------------------------------



| | provide certain financial statements to the trustee;
|- | ----------------------------------------------------



| | take actions to maintain the trustees or the noteholders rights under the relevant transaction documents;
|- | -----------------------------------------------------------------------------------------------------------



| | maintain the required coverage amount;
|- | --------------------------------------



| | provide certain information to noteholders required by Rule 144A; and
|- | ---------------------------------------------------------------------



| | replace the trustee upon any resignation or removal thereof.
|- | ------------------------------------------------------------



In addition, the terms of the indenture restrict our ability and the ability of our subsidiaries, among other things, to:



| | undertake certain mergers, consolidations or similar transactions;
|- | ------------------------------------------------------------------



| | create certain liens on our assets or pledge our assets; and
|- | ------------------------------------------------------------



| | enter into certain transactions with our affiliates.
|- | ----------------------------------------------------



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These covenants are subject to a number of terms, conditions and further qualifications.



The indenture also contains certain events of default, consisting of the
following:



| | failure to pay principal when due;
|- | ----------------------------------



| | failure to pay interest within 30 days of any interest payment date;
|- | --------------------------------------------------------------------



| | inaccuracy of any representation or warranty made by us or Petrobras in any transaction document or in certain specified other certificates when made;
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | breach of a covenant or agreement in the indenture, the standby purchase agreement and other relevant transaction documents by us or Petrobras;
|- | -----------------------------------------------------------------------------------------------------------------------------------------------



| | acceleration of or failure to make a payment on our indebtedness or the indebtedness of Petrobras or a material subsidiary of Petrobras that equals or exceeds a specified threshold;
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a final judgment against us, Petrobras or a material subsidiary of Petrobras that equals or exceeds a specified threshold;
|- | --------------------------------------------------------------------------------------------------------------------------



| | certain events of bankruptcy, liquidation or insolvency of us, Petrobras or any material subsidiary of Petrobras;
|- | -----------------------------------------------------------------------------------------------------------------



| | certain events relating to the unenforceability of the relevant transaction documents against us or Petrobras;
|- | --------------------------------------------------------------------------------------------------------------



| | the cancellation, termination (other than as permitted in the indenture) or unenforceability of the letter of credit unless an equivalent letter of credit is promptly provided or an
equivalent amount in U.S. dollars is promptly deposited in the reserve account;
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Petrobras ceases to own at least 51% of our outstanding voting shares; and
|- | --------------------------------------------------------------------------



| | we or Petrobras shall fail to comply with our obligations with respect to the required coverage amount.
|- | -------------------------------------------------------------------------------------------------------



Standby Purchase Agreements



Our Senior Notes have the benefit of credit support from Petrobras in the form of standby purchase agreements under which Petrobras is obligated to
make certain payments to the trustee in the event we fail to make required payments of principal, interest and other amounts due under the Senior Notes and the indenture. Subject to certain limitations, Petrobras is required to purchase from the
holders of the notes and pay to the trustee amounts in respect of the noteholders right to receive:



| | the amount of any interest or other amounts not paid by us in accordance with the terms of the notes and the indenture;
|- | -----------------------------------------------------------------------------------------------------------------------



| | the entire principal amount of the notes in the event we fail to do so at their expected maturity or earlier upon any redemption or acceleration of the Senior Notes prior to the
expected maturity date or, if extended, on the final maturity date; and
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | except where certain events have occurred which limit Petrobras ability to convert and transfer Reais and U.S. dollars, interest on all of the foregoing amounts at a default
rate, for payments beyond the date that we were required to make payment under the indenture in respect of the full principal amount of the Senior Notes.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We will have the right to defer making payments under the indentures for up to 18 months, if an event of inconvertibility,
untransferability or expropriation occurs that prevents Petrobras from making required payments under the standby purchase agreement.



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Obligations under the standby purchase agreement constitute direct and general senior unsecured and
unsubordinated obligations of Petrobras and rank pari passuwith other senior, unsecured obligations of Petrobras that are not, by their terms, expressly subordinated in right of payment to Petrobras obligations under the standby
purchase agreement.



Letters of Credit/Political Risk
Insurance



Pursuant to the indentures, we established and
maintained reserve accounts with the trustee on behalf of the holders of the Senior Notes. We were also required to issue an irrevocable standby letter of credit in favor of the trustee or provide political risk insurance for the trustee, in
aggregate amounts set forth in the terms of the Senior Notes. The required coverage amount varies for each series of Senior Notes. The funds in the reserve account may be returned to us, and the required coverage amount may be reduced, under certain
circumstances. We have paid all premiums on our insurance policies and/or have funded and issued standby irrevocable letters of credit, which will be replaced by other standby letters of credit or by funds in our reserve accounts.



Amounts may be withdrawn from the reserve account and drawings may be made
under the letter of credit or the political risk insurance policy to make scheduled interest payments on the Senior Notes for up to 18 months, if an event of inconvertibility, untransferability or expropriation occurs.



GLOBAL NOTES



On March 31, 2003, we issued U.S.$400 million of Global Step-Up Notes due
2008, which bear interest from March 31, 2003 at the rate of 9.00% per year until April 1, 2006 and at a rate of 12.375% thereafter. On July 2, 2003, we issued U.S.$500 million of 9.125% Global Notes. On September 18, 2003, we issued an additional
U.S.$250 million in 9.125% Global Notes, which form a single fungible series with the U.S.$500 million Global Notes due July 2013. On December 10, 2003, we issued U.S.$750 million of 8.375% Global Notes due 2018.



We issued these notes pursuant to our and Petrobras U.S.$8 billion
shelf registration statement on Form F-3, which was filed with the SEC on July 2, 2002. See Item 5. Operating and Financial Review and ProspectsManagements Discussion and Analysis of Results of OperationsLiquidity and Capital
Resources.



The terms of these notes are summarized
below.



Indenture



We issued the Global Notes pursuant to an indenture between us, as the
issuer, and JP Morgan Chase Bank, as trustee, dated as of July 19, 2002. The U.S.$400 million Global Step-Up Notes due 2008 were supplemented by the first supplemental indenture dated as of March 31, 2003, among us, Petrobras and the trustee. The
U.S.$500 million 9.125% Global Notes issued on July 2, 2003 due 2013 were supplemented by the second supplemental indenture dated as of July 2, 2003, among us, Petrobras and the trustee. The U.S.$250 million 9.125% Global Notes issued on September
18, 2003 due 2013 were supplemented by the amended and restated second supplemental indenture dated as of September 18, 2003, among us, Petrobras and the trustee. The U.S.$750 million 8.375% Global Notes due 2018 were supplemented by the third
supplemental indenture dated as of December 10, 2003, among us, Petrobras and the trustee. When we refer to the indenture in this section, we are referring to the indenture as supplemented by the first, second, amended and restated second and third
supplemental indentures.



The terms of the indenture require
us, among other things, to



| | pay all amounts owed by us under the indenture and the notes when such amounts are due;
|- | ---------------------------------------------------------------------------------------



| | perform all other obligations under the indenture;
|- | --------------------------------------------------



| | comply with all applicable laws;
|- | --------------------------------



| | maintain all necessary governmental approvals;
|- | ----------------------------------------------



| | pay all uncontested taxes;
|- | --------------------------



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| | preserve our existence;
|- | -----------------------



| | maintain our properties;
|- | ------------------------



| | maintain adequate insurance;
|- | ----------------------------



| | maintain our books and records in accordance with U.S. GAAP;
|- | ------------------------------------------------------------



| | maintain an office or agent in New York for the purpose of service of process and maintain a paying agent located in the United States;
|- | ---------------------------------------------------------------------------------------------------------------------------------------



| | ensure that the notes continue to be our senior obligations;
|- | ------------------------------------------------------------



| | use proceeds from the issuance of the notes for specified purposes, namely the purchase of oil imports and the repayment of short-term indebtedness;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | give notice to the trustee of any default or event of default under the indenture;
|- | ----------------------------------------------------------------------------------



| | provide certain financial statements to the trustee;
|- | ----------------------------------------------------



| | take actions to maintain the trustees or the noteholders rights under the relevant transaction documents; and
|- | ---------------------------------------------------------------------------------------------------------------



| | replace the trustee upon any resignation or removal thereof.
|- | ------------------------------------------------------------



In addition, the terms of the indenture restrict our ability and the ability of our subsidiaries, among other things, to:



| | undertake certain mergers, consolidations or similar transactions;
|- | ------------------------------------------------------------------



| | create certain liens on our assets or pledge our assets; and
|- | ------------------------------------------------------------



| | enter into certain transactions with our affiliates.
|- | ----------------------------------------------------



These covenants are subject to a number of terms, conditions and further qualifications.



The indenture also contains certain events of default, consisting of the following:



| | failure to pay principal within three calendar days of its due date;
|- | --------------------------------------------------------------------



| | failure to pay interest within 30 days of any interest payment date;
|- | --------------------------------------------------------------------



| | specified representations or warranties made by Petrobras in the standby purchase agreement not being true when made;
|- | ---------------------------------------------------------------------------------------------------------------------



| | breach of a covenant or agreement in the indenture or the standby purchase agreement by us or Petrobras, if not remedy within 60 calendar days;
|- | -----------------------------------------------------------------------------------------------------------------------------------------------



| | acceleration of or failure to make a payment on our indebtedness or the indebtedness of Petrobras or a material subsidiary of Petrobras that equals or exceeds U.S.$100 million;
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a final judgment against us, Petrobras or a material subsidiary of Petrobras that equals or exceeds U.S.$100 million;
|- | ---------------------------------------------------------------------------------------------------------------------



| | certain events of bankruptcy, liquidation or insolvency of us, Petrobras or any material subsidiary of Petrobras;
|- | -----------------------------------------------------------------------------------------------------------------



| | certain events relating to the unenforceability of the notes, the indenture or the standby purchase agreement against us or Petrobras; and
|- | ------------------------------------------------------------------------------------------------------------------------------------------



| | Petrobras ceases to own at least 51% of our outstanding voting shares.
|- | ----------------------------------------------------------------------



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Standby Purchase Agreement



Our Global Notes have the benefit of credit support from Petrobras in the form of a standby purchase agreement under which
Petrobras is obligated to make certain payments to the trustee in the event we fail to make required payments of principal, interest and other amounts due under the senior Global Notes and the indenture. Subject to certain limitations, Petrobras is
required to purchase from the holders of the notes and pay to the trustee amounts in respect of the noteholders right to receive:



| | the amount of any interest or other amounts not paid by us in accordance with the terms of the notes and the indenture;
|- | -----------------------------------------------------------------------------------------------------------------------



| | the entire principal amount of the notes in the event we fail to do so at their expected maturity or earlier upon any redemption or acceleration of the notes prior to the expected
maturity date;
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | the entire principal amount of the notes in the event that a holder of a note requires us to repurchase such note in accordance with the terms of the indenture; and
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | interest on all of the foregoing amounts at the rate of 1% above the note rate (the default rate), for payments beyond the date that we were required to make such payments under the
indenture.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Obligations under the standby
purchase agreement constitute direct and general senior unsecured and unsubordinated obligations of Petrobras and rank pari passuwith other senior, unsecured obligations of Petrobras that are not, by their terms, expressly subordinated in
right of payment to Petrobras obligations under the standby purchase agreement.



The Global Notes did not include a letter of credit or political risk insurance.



SALE OF FUTURE RECEIVABLES



In connection with Petrobras exports prepayment program, PFL has received senior and junior trust certificates in the aggregate amount of U.S.$1,800.0 million. See Item 4. Information on the
CompanyBusiness OverviewExport Prepayment Program.



The
Prepayment Agreement



Pursuant to a prepayment
agreement entered into by Petrobras and PFL, Petrobras undertook to deliver, for as long as any Senior and Junior Trust Certificates remain outstanding, in each quarterly period, a quantity of Eligible Products having a market value equal to any
scheduled payments of interest on and principal of the Senior and Junior Trust Certificates.



The Master Export Contract



As long as any Senior Trust Certificates or any amounts payable to the insurers remain outstanding, Petrobras will deliver, in each quarterly period, a quantity of Eligible Products having a value equal to any
scheduled payments of interest, principal or other amounts due under the Senior Trust Certificates. Under the Master Export Contract, Petrobras exports and sells Eligible Products to PFL during each quarterly period:



| | in an amount equal to at least 80% of the total volume of all bunker fuel and fuel oil (collectively, Heavy Fuel Oil) exported by Petrobras during that quarterly period; and
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | with a value (based upon the net invoice price at which such Eligible Products are actually sold by PFL) equal to at least:
|- | ---------------------------------------------------------------------------------------------------------------------------



| |  | the highest aggregate amount scheduled to be paid by the Trustee in any quarterly period during the remaining term of any series of Senior Trust Certificates at the time
outstanding, with respect to interest, principal and other amounts due under the Senior Trust Certificates multiplied by
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | a factor that fluctuates between 2.0 and 3.0, depending upon the level of sales of Eligible Products by PFL that are contracted to be made under arrangements that provide for a
minimum price per barrel or other hedging arrangements and the relevant minimum price or price established by such hedging arrangements.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Petrobras also agrees that its average daily gross exports of fuel oil and bunker fuel for any rolling twelve-month period will be equal to at least
70,000 barrels of fuel oil and bunker fuel. Petrobras is not relieved of its obligations to deliver Eligible Products under the Master Export Contract or the Prepayment Agreement, for any reason, including, without limitation, as a result of force
majeure or on non-payment by PFL.



Risk of Loss



Petrobras fulfills its delivery obligations to PFL by delivering the
Eligible Products directly to buyers on behalf of PFL. Title and risk of loss remain with Petrobras until the Eligible Products are delivered to the buyers, at which time both title and risk of loss pass to PFL and simultaneously to the buyers.



Taxes and Expenses



Petrobras is obligated to indemnify PFL against all costs, expenses,
liabilities, damages and other similar obligations which may be imposed upon, incurred or suffered by PFL in respect of any present or future taxes of any nature assessed against PFL by Brazil, the Cayman Islands, the United States or any other
taxing jurisdiction.



Indemnification



Petrobras is obligated to indemnify and hold harmless PFL, its affiliates,
and their respective officers, directors, employees and agents from all suits, direct damages or other losses arising from or out of the transactions contemplated by the principal agreements, including: any negligence or willful misconduct of
Petrobras, breach of representations or warranties, claims for payment (whether in cash or kind) by any and all third parties in respect of taxes or similar charges upon the distribution, sale and transportation of any Eligible Products prior to its
export, claims for payment by any and all third parties who purport to be entitled to receive any portion of the proceeds from, or any payment relating to, the sale of the Eligible Products to PFL, amounts payable by PFL in respect of any
indemnification provided to other persons, and all expenses arising from or out of any tax which may be levied and assessed upon PFL in respect of any delivery, sale or resale of Eligible Products to PFL.



Negative Pledge



So long as any senior trust certificate remains outstanding or any amount
payable to an Enhancer under any of the insurance documents remains outstanding, Petrobras will not create or permit any Lien, other than a Petrobras Permitted Lien, on any of Petrobras assets or any of its subsidiaries assets to secure
(i) any of Petrobras indebtedness, (ii) any of its subsidiaries indebtedness or (iii) the indebtedness of any other person, unless Petrobras contemporaneously creates or permits such Lien to secure equally and ratably Petrobras
obligations under the Master Export Contract and the other transaction documents to which it is a party or Petrobras provides other security for its obligations under the Master Export Contract and the other transaction documents to which it is a
party as is duly approved by a resolution of the senior certificate holders in accordance with the trust deed.



Sales Agreements



PFL sells Eligible Products purchased from Petrobras or its affiliates though the following agreements:



| | Offtake Contracts with Citibank, N.A, as Offtaker, pursuant to which PFL agreed to deliver and sell, and Citibank N.A. agreed to accept and purchase, during each quarterly delivery
period, Eligible Products with a value equal to at least 1.1 times the amounts scheduled to be paid in respect of the Series 2001 and 2003 Senior Trust Certificates on the payment date immediately following the end of such quarterly delivery period.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | A Product Sale Agreement with PAI, which may purchase Eligible Products from time to time from PFL and sell them to buyers primarily in the United States and its territories; and
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Sales to other purchasers of Eligible Products in the open market.
|- | ------------------------------------------------------------------



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The Receivables Purchase Agreement



Pursuant to a Receivables Purchase Agreement, PFL sells to the Trustee the rights to a specified amount of designated
receivables to be generated from the sale of Eligible Products by PFL. In exchange, the Trustee issued to PFL the Senior and Junior Trust Certificates. The rights to the purchased receivables acquired by the Trust on the closing date consists of:



| | Certain receivables to be generated by the sale of Eligible Products to the Offtaker, following an agreed schedule under the Offtake Contracts.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------



| | Certain additional receivables to be generated by the sale of Eligible Products to other buyers following an agreed schedule; and
|- | ---------------------------------------------------------------------------------------------------------------------------------



| | If applicable, certain receivables in each quarterly period equal to any taxes incurred on payments in respect of outstanding Senior Trust Certificates, together with certain other
amounts.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Insurance and Reimbursement Agreements



Each of the 2001 series and the 2003 B series of
Senior Trust Certificates features credit enhancement by means of a financial guaranty insurance policy. See Item 4. Information on the Company  Business Overview  Exports Prepayment Programs.



The parties also entered into Insurance and Reimbursement Agreements pursuant
to which, among other things, the Trustee has agreed to reimburse, with interest, MBIA, Ambac and XL Capital Assurance Inc., as applicable, for amounts paid pursuant to claims made under their respective financial guaranty insurance policies.



MATERIAL CONTRACTS



Except for the contracts entered into in connection with the transactions
described above, we have no other material contracts.



Statements contained in this annual report regarding the contents of any contract or other document are not necessarily complete, and, where the contract or other document is an exhibit to the annual report, each of these statements is
qualified in all aspects by the provisions of the actual contract or other documents.



DOCUMENTS ON DISPLAY



We
are subject to the information requirements of the Securities Exchange Act of 1934 applicable to a foreign private issuer, and accordingly, we file or furnish reports, information statements and other information with the U.S. Securities and
Exchange Commission. Documents that are exhibits to or incorporated by reference in this annual report and other information filed by us can be inspected at, and subject to the payment of any required fees, copies may be obtained from, the public
Reference Section of the U.S. Securities and Exchange Commission, 450 Fifth Street, N.W., room 1024, Washington, D.C. 20549.



As a foreign private issuer, we were not required to make filings with the SEC via Edgar prior to November 4th, 2002, although we were permitted to do so.
Any filings we make electronically will be available to the Public over the Internet at the SECs website at http://www.sec.gov.



Item 11. Quantitative and Qualitative Disclosures About Market Risk



We make limited use of derivatives. We do not hold derivative instruments for trading purposes or for leverage.



In the normal course of business, we face market risks, including interest
rate risk and oil and oil products price risk. While Petrobras is in the process of changing its risk management processes, including those which may affect us, neither Petrobras nor we have yet entered into derivative contracts or made other
arrangements to hedge against interest rate risk or commodity price risk. We have historically passed on our financing costs to Petrobras by selling crude oil and oil products to Petrobras at a premium to compensate for our financing costs. Although
Petrobras and we are considering methods of continuing this practice in the future, we cannot assure you that this practice will continue.



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Our borrowings are derived mainly from commercial banks and include trade lines of credit and commercial
paper, which are primarily intended for the purchase of crude oil and oil products, and with interest rates ranging from 2.6% to 5.2%. The weighted average annual interest rate for our short-term debt at December 31, 2003 was 3.85%, compared to
3.48% at December 31, 2002.



The table below sets forth the
amounts and related weighted average annual interest rates by expected maturity dates for our long-term debt obligations at December 31, 2003:



CALENDAR YEAR OF EXPECTED MATURITY DATE FOR DEBT

(in thousands of U.S. dollars, except for percentages)



December 31, 2003



|                       |  |         |   |  |         |   |  |         |   |  |         |   |  |         |   |  |           |   |  |           |  |                        |          
|---------------------- |  | ------- | - |  | ------- | - |  | ------- | - |  | ------- | - |  | ------- | - |  | --------- | - |  | --------- |  | ---------------------- | ---------
|Debt Obligations       |  | 2005    |   |  | 2006    |   |  | 2007    |   |  | 2008    |   |  | 2009    |   |  | 2010-2018 |   |  | Total     |  | Fair ValueDec 31, 2003
|Debt in U.S. Dollars:  |  |         |   |  |         |   |  |         |   |  |         |   |  |         |   |  |           |   |  |           |  |                        |          
|Fixed rate debt        |  | 105,378 |   |  | 116,638 |   |  | 957,006 |   |  | 949,921 |   |  | 130,338 |   |  | 2,762,505 |   |  | 5,021,786 |  | $                      | 5,475,399
|Average interest rate  |  | 7.14    | % |  | 7.12    | % |  | 7.71    | % |  | 10.80   | % |  | 7.17    | % |  | 8.63      | % |  |           |  |                        |          
|Variable rate debt     |  | 153,970 |   |  | 292,240 |   |  | 37,750  |   |  | 40,250  |   |  | 42,880  |   |  | 236,460   |   |  | 803,550   |  |                        | 807,666  
|Average interest rate  |  | 4.18    | % |  | 3.93    | % |  | 6.19    | % |  | 6.19    | % |  | 6.19    | % |  | 5.84      | % |  |           |  |                        |          
|                       |  |         |   |  |         |   |  |         |   |  |         |   |  |         |   |  |           |   |  |           |  |                        |          
|Total debt obligations |  | 259,348 |   |  | 408,878 |   |  | 994,756 |   |  | 990,171 |   |  | 173,218 |   |  | 2,998,965 |   |  | 5,825,336 |  | $                      | 6,283,065
|                       |  |         |   |  |         |   |  |         |   |  |         |   |  |         |   |  |           |   |  |           |  |                        |          



|                     |  |       |  
|-------------------- |  | ----- | -
|Total Debt Portfolio |  | 2003  |  
|U.S. Dollars:        |  |       |  
|Fixed rate debt      |  | 86.2  | %
|Floating rate debt   |  | 13.8  | %
|Total                |  | 100.0 | %
|                     |  |       |  



At December 31, 2003,
13.8% of our debt was dollar-denominated floating rate debt and 86.2% of our debt was dollar-denominated fixed rate debt. Since all of our debt is dollar denominated, we are not subject to material foreign exchange rate risk.



Item 12. Description of Securities Other than Equity Securities



Not applicable.



Item 13. Defaults, Dividend Arrearages and Delinquencies



None.



Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds



None.



Item 15. Controls and Procedures



We carried out an evaluation under the supervision and with the participation of our management, including the Chief Executive Officer and Financial Manager, of the effectiveness of the design and operation of our disclosure controls and
procedures as of December 31, 2003. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures.
Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our Chief Executive Officer and Financial Manager concluded that the disclosure
controls and procedures as of December 31, 2003 were effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and
when required.



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There has been no change in our internal control over financial reporting in 2003 that has materially
affect or is reasonably likely to materially affect our internal control over financial reporting.



ITEM 16A. Audit Committee Financial Expert



Our board of directors currently serves as our audit committee for purposes of the Sarbanes-Oxley Act of 2002. Our board of directors has reviewed the qualifications and backgrounds of its members and determined that,
although no one member of the board of directors is an audit committee financial expert within the meaning of this Item 16A, the combined qualifications and experience of the members of the board of directors give it collectively the
financial expertise necessary to discharge its responsibilities.



ITEM 16B. Code of Ethics



Petrobras has adopted a Code of Ethics applicable to its employees and a Code of Good Practices applicable to its directors and executive officers. Petrobras Code of Ethics and Code of Good Practices are also applicable to us and
apply to our directors. No waivers of the provisions of the Code of Ethics or Code of Good Practices are permitted. Both documents are available on Petrobras website: www.petrobras.com.br/investor relations/corporate governance.



ITEM 16C. Principal Accountant Fees and Services



Principal Accountant Fees



The following table
sets forth the fees billed to us by our independent auditors, Pricewaterhouse Coopers Auditores Independentes in 2002 and from January to March of 2003, and Ernst & Young Auditores Independentes S/S from March 2003 until December 31, 2003,
during the fiscal years ended December 31, 2002 and 2003:



|                   |  |                             |  |      |  |     |  |      
|------------------ |  | --------------------------- |  | ---- |  | --- |  | -----
|                   |  | Year ended December 31,    
|                   |  | 2002                        |  | 2003
|                   |  | PWC                         |  | EY   |  | PWC |  | Total
|                   |  | (thousands of U.S. dollars)
|Audit Fees         |  | 260                         |  | 54   |  | 100 |  | 154  
|Audit-Related Fees |  | 79                          |  | 7    |  | 204 |  | 211  
|Tax Fees           |  |                            |  |     |  |    |  |     
|All Other Fees     |  |                            |  |     |  |    |  |     
|                   |  |                             |  |      |  |     |  |      
|Total Fees         |  | 339                         |  | 61   |  | 304 |  | 365  
|                   |  |                             |  |      |  |     |  |      



Audit Fees
are the aggregate fees billed by Ernst & Young Auditores Independentes S/S and Pricewaterhouse Coopers Auditores Independentes for the audit of our consolidated and annual financial statements, reviews of interim financial statements and
attestation services that are provided in connection with statutory and regulatory filings or engagements. Fees disclosed under the category Audit-Related Fees are mainly related to services provided in connection with the issuance of
our notes in the international capital markets and our exports prepayment program.



Audit Committee Approval Policies and Procedures



Since Petrobras does not have an audit committee as defined by the SEC, Petrobras board of directors serves as its audit committee for purposes of the Sarbanes-Oxley Act of 2002. Petrobras board of directors has not established
pre-approval policies and procedures for the engagement of independent auditors for services rendered to it or its subsidiaries, including us. Petrobras board of directors expressly approves on a case-by-case basis any engagement of our
independent auditors for all services provided to us. Petrobras by-laws prohibit our independent auditors from providing any consulting services to us.



Item 17. Financial Statements



We have responded to Item 18 in lieu of this item.



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Item 18. Financial Statements



The following financial statements, together with the reports of Ernst & Young Auditores Independentes S/S thereon, are filed as a part of this annual report:



|                                                                                                  |  |     
|------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                  |  | Page
|Report of Independent Registered Public Accounting Firm                                           |  | F-1 
|Consolidated Balance Sheets as of December 31, 2003 and 2002                                      |  | F-2 
|Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001        |  | F-4 
|Changes in Consolidated Stockholders Equity for the years ended December 31, 2003, 2002 and 2001 |  | F-5 
|Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001        |  | F-6 
|Notes to Consolidated Financial Statements                                                        |  | F-8 



Item 19. Exhibits



|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No: |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Exhibit 1   |  | Memorandum and Articles of Association of Petrobras International Finance Company (incorporated by reference to Exhibit 1 to the Annual Report on Form 20-F of Petrobras International Finance
Company, filed with the Securities and Exchange Commission on July 1, 2002, and amendments to which were filed on December 13, 2002 and March 20, 2003 (File No. 333-14168)).                                                                                
|            | 
|Exhibit 2   |  | Indenture, dated as of May 9, 2001, between Petrobras International Finance Company and The Bank of New York, as Trustee, relating to the 97/8% Senior Notes due 2008 (incorporated by reference to Exhibit 4.1 to the Registration Statement of Petrobras International Finance Company and
Petróleo Brasileiro S.A.Petrobras on Form F-4, filed with the Securities and Exchange Commission on December 6, 2001 (File No. 333-14168)).                   
|            | 
|Exhibit 2.1 |  | Supplemental Indenture, dated as of November 26, 2001, between Petrobras International Finance Company and The Bank of New York, as Trustee, relating to the 97/8% Senior Notes due 2008 (incorporated by reference to Exhibit 4.2 to the Registration Statement of Petrobras
International Finance Company and Petróleo Brasileiro S.A.Petrobras on Form F-4, filed with the Securities and Exchange Commission on December 6, 2001 (File No. 333-14168)).
|            | 
|Exhibit 2.2 |  | Indenture, dated as of July 6, 2001, between Petrobras International Finance Company and The Bank of New York, as Trustee, relating to the 93/4% Senior Notes due 2011 (incorporated by reference to Exhibit 4.1 to the Registration Statement of Petrobras International Finance Company and
Petróleo Brasileiro S.A.Petrobras on Form F-4, filed with the Securities and Exchange Commission on December 6, 2001 (File No. 333-14170)).                  



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|             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 2.3  |  | Supplemental Indenture, dated as of November 26, 2001, between Petrobras International Finance Company and The Bank of New York, as Trustee, relating to the 93/4% Senior Notes due 2011 (incorporated by reference to Exhibit 4.2 to the Registration Statement of Petrobras
International Finance Company and Petróleo Brasileiro S.A.Petrobras on Form F-4, filed with the Securities and Exchange Commission on December 6, 2001 (File No. 333-14170)).                                                                                                                                
|             | 
|Exhibit 2.4  |  | Indenture, initially dated as of February 4, 2002, as amended and restated as of February 28, 2002, between Petrobras International Finance Company and The Bank of New York, as Trustee,
relating to the 91/8% Senior Notes due 2007 (incorporated by reference to Exhibit 2.19 to the amended Annual
Report on Form 20-F of Petrobras International Finance Company, filed with the Securities and Exchange Commission on December 13, 2002 (File No. 333-14168)).                                                                                                                        
|             | 
|Exhibit 2.5  |  | Indenture, dated as of July 19, 2002, between Petrobras International Finance Company and JPMorgan Chase Bank, as Trustee (incorporated by reference to exhibit 4.5 of the Registration
Statement of Petrobras International Finance Company and Petróleo Brasileiro S.A.Petrobras on Form F-3, filed with the Securities and Exchange Commission on July 5, 2002, and amendments to which were filed on July 19, 2002 and August
14, 2002 (File No. 333-92044-01)).                                                                                                                       
|             | 
|Exhibit 2.6  |  | First Supplemental Indenture, dated as of March 31, 2003, between Petrobras International Finance Company and JPMorgan Chase Bank, as Trustee, relating to the 9.00% Global Step-Up Notes due
2008 (incorporated by reference to Exhibit 2.6 of the Annual Report on Form 20-F of Petróleo Brasileiro S.A.Petrobras, filed with the Securities and Exchange Commission on June 19, 2003 (File No. 1-115106)).                                                                                                                                                                              
|             | 
|Exhibit 2.7  |  | Second Supplemental Indenture, dated as of July 2, 2003, between Petrobras International Finance Company and JPMorgan Chase Bank, as Trustee, relating to the 9.125% Global Notes due
2013.                                                                                                                                                                                                                                                                                                                                                                                                 
|             | 
|Exhibit 2.8  |  | Second Supplemental Indenture, amended and restated, dated as of September 18, 2003, between Petrobras International Finance Company and JPMorgan Chase Bank, as Trustee, relating to the
9.125% Global Notes due 2013.                                                                                                                                                                                                                                                                                                                                                                     
|             | 
|Exhibit 2.9  |  | Third Supplemental Indenture, dated as of December 10, 2003, between Petrobras International Finance Company and JPMorgan Chase Bank, as Trustee, relating to the 8.375% Global Notes due
2018.                                                                                                                                                                                                                                                                                                                                                                                             
|             | 
|Exhibit 2.10 |  | Registration Rights Agreement, dated as of May 9, 2001, among Petrobras International Finance Company, Petróleo Brasileiro S.A.Petrobras, and USB Warburg LLC, Banc of America
Securities LLC, J.P. Morgan Securities Inc., RBC Dominion Securities Corporation and Santander Central Hispano Investment Securities Inc. (incorporated by reference to Exhibit 4.4 to the Registration Statement of Petrobras International Finance
Company and Petróleo Brasileiro S.A.Petrobras on Form F-4 filed with the Securities and Exchange Commission on December 6, 2001 (File No. 333-14168)).
|             | 
|Exhibit 2.11 |  | Registration Rights Agreement, dated as of July 6, 2001, among Petrobras International Finance Company, Petróleo Brasileiro S.A.Petrobras, and USB Warburg LLC, Banc of America
Securities LLC, J.P. Morgan Securities Inc., RBC Dominion Securities Corporation and Santander Central Hispano Investment Securities Inc. (incorporated by reference to                                                                                                                                                                                                                                    



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##### Table of Contents

|             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|             |  | Exhibit 4.4 to the Registration Statement of Petrobras International Finance Company and Petróleo Brasileiro S.A.Petrobras on Form F-4, filed with the Securities and Exchange
Commission on December 6, 2001 (File No. 333-14170)).                                                                                                                                                                                                                                                          
|             | 
|Exhibit 2.12 |  | Registration Rights Agreement, initially dated as of February 4, 2002, as amended and restated as of February 28, 2002, among Petrobras International Finance Company, Petróleo
Brasileiro S.A.Petrobras, UBS Warburg LLC and Morgan Stanley & Co. Incorporated (incorporated by reference to Exhibit 2.20 to the amended Annual Report on Form 20-F of Petrobras International Finance Company, filed with the Securities and
Exchange Commission on December 13, 2002 (File No. 333-14168)).
|             | 
|Exhibit 2.13 |  | Standby Purchase Agreement, dated as of May 9, 2001, between Petróleo Brasileiro S.A.Petrobras and The Bank of New York (incorporated by reference to Exhibit 4.5 to the
Registration Statement of Petrobras International Finance Company and Petróleo Brasileiro S.A.Petrobras on Form F-4, filed with the Securities and Exchange Commission on December 6, 2001 (File No. 333-14168)).                                                                                                   
|             | 
|Exhibit 2.14 |  | Amendment No. 1 to the Standby Purchase Agreement, dated as of November 26, 2001, between Petróleo Brasileiro S.A.Petrobras and The Bank of New York, as Trustee (incorporated by
reference to Exhibit 4.6 to the Registration Statement of Petrobras International Finance Company and Petróleo Brasileiro S.A.Petrobras on Form F-4, filed with the Securities and Exchange Commission on December 6, 2001 (File No.
333-14168)).                                                          
|             | 
|Exhibit 2.15 |  | Standby Purchase Agreement, dated as of July 6, 2001, between Petróleo Brasileiro S.A.Petrobras and The Bank of New York (incorporated by reference to Exhibit 4.5 to the
Registration Statement of Petrobras International Finance Company and Petróleo Brasileiro S.A.Petrobras on Form F-4, filed with the Securities and Exchange Commission on December 6, 2001 (File No. 333-14170)).                                                                                                  
|             | 
|Exhibit 2.16 |  | Amendment No. 1 to the Standby Purchase Agreement, dated as of November 26, 2001, between Petróleo Brasileiro S.A.Petrobras and The Bank of New York, as Trustee (incorporated by
reference to Exhibit 4.6 to the Registration Statement of Petrobras International Finance Company and Petróleo Brasileiro S.A.Petrobras on Form F-4, filed with the Securities and Exchange Commission on December 6, 2001 (File No.
333-14170)).                                                          
|             | 
|Exhibit 2.17 |  | Standby Purchase Agreement, initially dated as of February 4, 2002, as amended and restated as of February 28, 2002, between Petróleo Brasileiro S.A.Petrobras and The Bank of New
York, as Trustee (incorporated by reference to Exhibit 2.21 to the amended Annual Report on Form 20-F of Petrobras International Finance Company, filed with the Securities and Exchange Commission on December 13, 2002 (File No.
333-14168)).                                                            
|             | 
|Exhibit 2.18 |  | Standby Purchase Agreement dated as of March 31, 2003, between Petróleo Brasileiro S.A.Petrobras and JPMorgan Chase Bank, as Trustee (incorporated by reference to Exhibit 2.15 to
the Annual Report on Form 20-F of Petrobras International Finance Company, filed with the Securities and Exchange Commission on June 19, 2003 (File No. 333-14168)).                                                                                                                                       



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|             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|             | 
|Exhibit 2.19 |  | Standby Purchase Agreement dated as of July 2, 2003, between Petróleo Brasileiro S.A.Petrobras and JPMorgan Chase Bank, as Trustee.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|             | 
|Exhibit 2.20 |  | Amended and Restated Standby Purchase Agreement initially dated as of July 2, 2003, as amended and restated as of September 18, 2003, between Petróleo Brasileiro S.A.Petrobras
and JPMorgan Chase Bank, as Trustee.                                                                                                                                                                                                                                                                                                                                                
|             | 
|Exhibit 2.21 |  | Standby Purchase Agreement dated as of December 10, 2003, between Petróleo Brasileiro S.A.Petrobras and JPMorgan Chase Bank, as Trustee.                                                                                                                                                                                                                                                                                                                                                                                                                            
|             | 
|Exhibit 2.22 |  | Notes Purchase Agreement, dated as of January 29, 2002, between Petrobras International Finance Company and UBS Warburg LLC and Morgan Stanley & Co. Incorporated (incorporated by
reference to Exhibit 2.13 to the Annual Report on Form 20-F of Petrobras International Finance Company, filed with the Securities and Exchange Commission on July 1, 2002, and amendments to which were filed on December 13, 2002 and March 20, 2003
(File No. 333-14168)).                                                                                                      
|             | 
|Exhibit 2.23 |  | Master Export Contract, dated as of December 21, 2001, between Petróleo Brasileiro S.A.Petrobras and Petrobras Finance Ltd. (incorporated by reference to Exhibit 2.14 to the
Annual Report on Form 20-F of Petrobras International Finance Company, filed with the Securities and Exchange Commission on July 1, 2002, and amendments to which were filed on December 13, 2002 and March 20, 2003 (File No.
333-14168)).                                                                                                                                           
|             | 
|Exhibit 2.24 |  | Amendment to the Master Export Contract, dated as of May 21, 2003, among Petróleo Brasileiro S.A.  Petrobras and Petrobras Finance Ltd. (incorporated by reference to Exhibit 2.18
to the Annual Report on Form 20-F of Petrobras International Finance Company, filed with the Securities and Exchange Commission on June 19, 2003 (File No. 333-14168)).                                                                                                                                                                                                          
|             | 
|Exhibit 2.25 |  | Depositary Agreement, dated as of December 21, 2001, among U.S. Bank, National Association, Cayman Islands Branch, in capacity as Trustee of the PF Export Receivables Master Trust, Citibank,
N.A., in capacity as Securities Intermediary, and Petrobras Finance Ltd. (incorporated by reference to Exhibit 2.15 to the Annual Report on Form 20-F of Petrobras International Finance Company, filed with the Securities and Exchange Commission on
July 1, 2002, and amendments to which were filed on December 13, 2002 and March 20, 2003 (File No. 333-14168)).
|             | 
|Exhibit 2.26 |  | Letter Agreement relating to the Depositary Agreement, dated as of May 16, 2003 (incorporated by reference to Exhibit 2.20 to the Annual Report on Form 20-F of Petrobras International Finance
Company, filed with the Securities and Exchange Commission on June 19, 2003 (File No. 333-14168)).                                                                                                                                                                                                                                                                   
|             | 
|Exhibit 2.27 |  | Administrative Services Agreement, dated as of December 21, 2001, between Petróleo Brasileiro S.A.Petrobras, as Delivery and Sales Agent, and Petrobras Finance Ltd. (incorporated
by reference to Exhibit 2.16 to the Annual Report on Form 20-F of Petrobras International Finance Company, filed with the Securities and Exchange Commission on July 1, 2002, and amendments to which were filed on December 13, 2002 and March 20, 2003
(File No. 333-14168)).                                                                                                  
|             | 
|Exhibit 2.28 |  | Letter Agreement relating to the Administrative Services Agreement, dated as of May 16, 2003 (incorporated by reference to Exhibit 2.22 to the Annual Report on Form 20-F of Petrobras
International Finance Company, filed with the Securities and Exchange Commission on June 19, 2003 (File No. 333-14168)).                                                                                                                                                                                                                                                      



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|             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|             | 
|Exhibit 2.29 |  | Amended and Restated Trust Deed, dated as of December 21, 2001, among U.S. Bank, National Association, Cayman Islands Branch, in capacity as Trustee of the PF Export Receivables Master Trust,
Citibank, N.A., in capacity as Paying Agent, Transfer Agent, Registrar and Depositary Bank, and Petrobras International Finance Company, as Servicer (incorporated by reference to Exhibit 2.17 to the Annual Report on Form 20-F of Petrobras
International Finance Company, filed with the Securities and Exchange Commission on July 1, 2002, and amendments to which were filed on December 13, 2002 and March 20, 2003 (File No. 333-14168)).
|             | 
|Exhibit 2.30 |  | Receivables Purchase Agreement, dated as of December 21, 2001, among Petrobras Finance Ltd., Petróleo Brasileiro S.A.Petrobras and U.S. Bank, National Association, Cayman Islands
Branch, solely in capacity as Trustee of the PF Export Receivables Master Trust (incorporated by reference to Exhibit 2.18 to the Annual Report on Form 20-F of Petrobras International Finance Company, filed with the Securities and Exchange
Commission on July 1, 2002, and amendments to which were filed on December 13, 2002 and March 20, 2003 (File No. 333-14168)).                                                                                 
|             | 
|Exhibit 2.31 |  | Amended and Restated Receivables Purchase Agreement, dated as of May 21, 2003, among Petrobras Finance Ltd., Petróleo Brasileiro S.A.Petrobras and U.S. Bank, National
Association, Cayman Islands Branch, solely in capacity as Trustee of the PF Export Receivables Master Trust (incorporated by reference to Exhibit 2.25 to the Annual Report on Form 20-F of Petrobras International Finance Company, filed with the
Securities and Exchange Commission on June 19, 2003 (File No. 333-14168)).                                                                                                                                            
|             | 
|Exhibit 2.32 |  | Prepayment Agreement, dated as of December 21, 2001, between Petróleo Brasileiro S.A.Petrobras and Petrobras Finance Ltd. (incorporated by reference to Exhibit 2.26 to the Annual
Report on Form 20-F of Petrobras International Finance Company, filed with the Securities and Exchange Commission on June 19, 2003 (File No. 333-14168)).                                                                                                                                                                                                                                                                                                     
|             | 
|Exhibit 2.33 |  | Amended and Restated Prepayment Agreement, dated as of May 2, 2003, between Petróleo Brasileiro S.A.Petrobras and Petrobras Finance Ltd. (incorporated by reference to Exhibit
2.27 to the Annual Report on Form 20-F of Petrobras International Finance Company, filed with the Securities and Exchange Commission on June 19, 2003 (File No. 333-14168)).                                                                                                                                                                                                                                                                                      
|             | 
|Exhibit 12.1 |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|             | 
|Exhibit 13.1 |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|             | 
|Exhibit 15.1 |  | Ernst & Young Auditores Independentes S/S consent to the incorporation by reference in the Registration Statement (Form F-3 No. 333 - 92044) of Petroleo Brasileiro S.A.PETROBRAS
(Petrobras) of its report dated February 13, 2004, with respect to the consolidated financial statements for the year ended December 31, 2003 of Petrobras International Finance Company (PIFCo) and its subsidiaries included in the Annual
Report (Form 20-F) of PIFCo for the year ended December 31, 2003.                                                                                                                                               



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GLOSSARY OF PETROLEUM INDUSTRY TERMS



Unless the context indicates otherwise, the following terms have the meanings shown below:



|                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|barrels or bbls  |  | Barrels of crude oil.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                     | 
|catalytic cracking |  | A process by which hydrocarbon molecules are broken down (cracked) into lighter fractions by the action of a catalyst.                                                                                                                                                                                                                                                                                                                                                                                                 
|                     | 
|condensate         |  | Light hydrocarbon substances produced with natural gas which condense into liquid at normal temperatures and pressures associated with surface production equipment.                                                                                                                                                                                                                                                                                                                                                   
|                     | 
|crude oil          |  | Crude oil, including NGLs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                     | 
|distillation       |  | A process by which liquids are separated or refined by vaporization followed by condensation.                                                                                                                                                                                                                                                                                                                                                                                                                          
|                     | 
|heavy crude oil    |  | Crude oil with API density less than or equal to 27°.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                     | 
|light crude oil    |  | Crude oil with API density higher than 27°.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                     | 
|LPG                |  | Liquefied petroleum gas, which is a mixture of saturated and unsaturated hydrocarbons, with up to five carbon atoms, used as domestic fuel.                                                                                                                                                                                                                                                                                                                                                                            
|                     | 
|NGLs               |  | Natural gas liquids, which are light hydrocarbon substances produced with natural gas which condense into liquid at normal temperatures and pressures.                                                                                                                                                                                                                                                                                                                                                                 
|                     | 
|Proved reserves    |  | Proved oil and gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual
arrangements, but not on escalations based upon future conditions.



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ABBREVIATIONS



|       |  |                                    
|------ |  | -----------------------------------
|Bbl    |  | Barrel                             
|Bcf    |  | Billion cubic feet                 
|Boe    |  | Barrels of oil equivalent          
|Bpd    |  | Barrels per day                    
|Cf     |  | Cubic feet                         
|Km     |  | Kilometer                          
|Km2    |  | Square kilometers                  
|Mbbl   |  | Thousand barrels                   
|Mboe   |  | Thousand barrels of oil equivalent 
|Mbpd   |  | Thousand barrels per day           
|Mcf    |  | Thousand cubic feet                
|MMbbl  |  | Million barrels                    
|MMboe  |  | Million barrels of oil equivalent  
|MMcf   |  | Million cubic feet                 
|MMcmd  |  | Million cubic meters per day       
|MMcfpd |  | Million cubic feet per day         
|MMscfd |  | Million standard cubic feet per day
|m3     |  | Cubic meters                       



CONVERSION TABLE



|                                         |  |   |  |                                             |  |   |  |                                                                                                                         
|---------------------------------------- |  | - |  | ------------------------------------------- |  | - |  | ------------------------------------------------------------------------------------------------------------------------
|1 barrel                                 |  | = |  | 42 U.S. gallons                             |  |   |  |                                                                                                                         
|1 domestic barrel of oil equivalent      |  | = |  | 1 barrel of crude oil                       |  | = |  | 5,614.4 cubic feet of natural gas through December 31, 1999 and 6,000 cubic feet of natural gas as of December 31, 2000.
|1 international barrel of oil equivalent |  | = |  | 1 barrel of crude oil                       |  | = |  | 6,000.0 cubic feet of natural gas                                                                                       
|1 cubic meter of natural gas             |  | = |  | 35.314 cubic feet                           |  | = |  | 0.0063 barrels of oil equivalent                                                                                        
|1 Km                                     |  | = |  | 0.625 miles                                 |  |   |  |                                                                                                                         
|1 Km2                                    |  | = |  | 247.1 acres                                 |  |   |  |                                                                                                                         
|1 ton of crude oil                       |  | = |  | 1 metric ton (1,000 kilograms of crude oil) |  | = |  | Approximately 7.5 barrels of crude oil (assuming an atmospheric pressure index gravity of 37° API)                      
|1 meter                                  |  | = |  | 3.2808 feet                                 |  |   |  |                                                                                                                         



53



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SIGNATURE



Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, Petrobras International Finance CompanyPIFCo, hereby certifies
that it meets all the requirements for filing on Form 20-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.



Petrobras International Finance CompanyPIFCoBy:

/s/ ALMIR GUILHERME BARBASSAName:

Almir Guilherme BarbassaTitle:

Chairman




Date: June 30, 2004



54



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CONSOLIDATED FINANCIAL STATEMENTS



PETROBRAS INTERNATIONAL FINANCE COMPANY

(A wholly-owned subsidiary of PETRÓLEO BRASILEIRO S.A.  PETROBRAS)



Years ended December 31, 2003 and 2002 together with Report of
Independent Registered Public Accounting Firm





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##### Table of Contents

PETROBRAS INTERNATIONAL FINANCE COMPANY

AND SUBSIDIARIES

(A wholly-owned subsidiary of PETRÓLEO BRASILEIRO S.A. - PETROBRAS)



FINANCIAL STATEMENTS

Years ended December 31, 2003 and 2002



Contents



|                                                          |  |    
|--------------------------------------------------------- |  | ---
|Report of Independent Registered Public Accounting Firm   |  | F-1
|                                                          | 
|Audited Financial Statements                              |  |    
|                                                          | 
|Consolidated Balance Sheet                                |  | F-2
|Consolidated Statement of Operations                      |  | F-4
|Consolidated Statement of Changes in Stockholders Equity |  | F-5
|Consolidated Statement of Cash Flows                      |  | F-6
|Notes to Consolidated Financial Statements                |  | F-8



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Executive Board and Stockholder of

PETROBRAS INTERNATIONAL FINANCE COMPANY



We have audited the accompanying consolidated balance sheet of PETROBRAS INTERNATIONAL FINANCE COMPANY and its subsidiaries as of December
31, 2003, and the related consolidated statements of operations, changes in stockholders equity and cash flows, for the year then ended. These financial statements are the responsibility of the Companys management. Our responsibility is
to express an opinion on these financial statements based on our audit.



We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of PETROBRAS INTERNATIONAL
FINANCE COMPANY and its subsidiaries at December 31, 2003, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.



ERNST & YOUNG

Auditores Independentes S/S



Paulo José Machado

Partner



Rio de Janeiro, Brazil

February 13, 2004



F-1



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##### Table of Contents

PETROBRAS INTERNATIONAL FINANCE COMPANY

AND SUBSIDIARIES

(A wholly-owned subsidiary of PETRÓLEO BRASILEIRO S.A. - PETROBRAS)



CONSOLIDATED BALANCE SHEET

As of December 31, 2003 and 2002

(In thousands of US dollars)



|                                                             |  |                   |  |                  
|------------------------------------------------------------ |  | ----------------- |  | -----------------
|                                                             |  | December 31, 2003 |  | December 31, 2002
|Assets                                                       |  |                   |  |                  
|                                                             |  |                  
|Current assets                                               |  |                   |  |                  
|Cash and cash equivalents                                    |  | 1,262,039         |  | 260,629          
|Marketable securities                                        |  | 17,960            |  | 61,673           
|Accounts receivable                                          |  |                   |  |                  
|Related parties                                              |  | 5,064,472         |  | 4,837,080        
|Trade                                                        |  | 109,415           |  | 57,073           
|Notes receivable - related parties                           |  | 1,388,004         |  | 1,157,930        
|Inventories                                                  |  | 6,443             |  | 4,506            
|Export prepayments  related parties                         |  | 72,482            |  | 1,189            
|Restricted deposits for guarantees and others                |  | 81,976            |  | 7,889            
|                                                             |  |                   |  |                  
|                                                             |  | 8,002,791         |  | 6,387,969        
|                                                             |  |                   |  |                  
|Property and equipment                                       |  | 41                |  | 110              
|                                                             |  |                   |  |                  
|Other assets                                                 |  |                   |  |                  
|Marketable securities                                        |  |                  |  | 36,299           
|Advances to suppliers                                        |  |                  |  | 19,027           
|Notes receivable - related parties                           |  | 338,416           |  | 473,632          
|Assets related to export prepayments                         |  | 300,000           |  | 150,000          
|Export prepayment  related parties                          |  | 1,406,850         |  | 750,000          
|Net investment in direct financing leases from related party |  |                  |  | 832,319          
|Restricted deposits for guarantees and prepaid expenses      |  | 148,510           |  | 47,946           
|                                                             |  |                   |  |                  
|                                                             |  | 2,193,776         |  | 2,309,223        
|                                                             |  |                   |  |                  
|Total assets                                                 |  | 10,196,608        |  | 8,697,302        
|                                                             |  |                   |  |                  



F-2



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##### Table of Contents

PETROBRAS INTERNATIONAL FINANCE COMPANY

AND SUBSIDIARIES

(A wholly-owned subsidiary of PETRÓLEO BRASILEIRO S.A. - PETROBRAS)



CONSOLIDATED BALANCE SHEET

As of December 31, 2003 and 2002

(In thousands of US dollars)



|                                                              |  |                   |   |  |                   |  
|------------------------------------------------------------- |  | ----------------- | - |  | ----------------- | -
|                                                              |  | December 31, 2003 |   |  | December 31, 2002 |  
|Liabilities and stockholders equity                          |  |                   |   |  |                   |  
|                                                              |  |                  
|Current liabilities                                           |  |                   |   |  |                   |  
|Trade accounts payable                                        |  |                   |   |  |                   |  
|Related parties                                               |  | 270,950           |   |  | 291,980           |  
|Other                                                         |  | 349,029           |   |  | 281,133           |  
|Notes payable - related parties                               |  | 2,442,778         |   |  | 3,688,249         |  
|Short-term financing                                          |  | 852,390           |   |  | 285,770           |  
|Current portion of long term debt                             |  | 224,002           |   |  | 81,700            |  
|Accrued interest                                              |  | 71,494            |   |  | 56,169            |  
|Unearned income - related parties                             |  | 61,866            |   |  | 48,563            |  
|Capital lease obligations                                     |  |                  |   |  | 68,948            |  
|Others                                                        |  | 3,922             |   |  | 415               |  
|                                                              |  |                   |   |  |                   |  
|                                                              |  | 4,276,431         |   |  | 4,802,927         |  
|                                                              |  |                   |   |  |                   |  
|Long-term liabilities                                         |  |                   |   |  |                   |  
|Capital lease obligations                                     |  |                  |   |  | 601,733           |  
|Long-term debt                                                |  | 5,825,336         |   |  | 3,248,716         |  
|                                                              |  |                   |   |  |                   |  
|                                                              |  | 5,825,336         |   |  | 3,850,449         |  
|                                                              |  |                   |   |  |                   |  
|Stockholders equity                                          |  |                   |   |  |                   |  
|Shares authorized and issued                                  |  |                   |   |  |                   |  
|Common stock - 2003 and 2002 - 50,000 shares, par value US$ 1 |  | 50                |   |  | 50                |  
|Additional paid in capital                                    |  | 173,926           |   |  | 120,000           |  
|Accumulated deficit                                           |  | (79,135           | ) |  | (76,124           | )
|                                                              |  |                   |   |  |                   |  
|                                                              |  | 94,841            |   |  | 43,926            |  
|                                                              |  |                   |   |  |                   |  
|Total liabilities and stockholders equity                    |  | 10,196,608        |   |  | 8,697,302         |  
|                                                              |  |                   |   |  |                   |  



F-3



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##### Table of Contents

PETROBRAS INTERNATIONAL FINANCE COMPANY

AND SUBSIDIARIES

(A wholly-owned subsidiary of PETRÓLEO BRASILEIRO S.A. - PETROBRAS)



CONSOLIDATED STATEMENT OF OPERATIONS

Years Ended December 31, 2003, 2002 and
2001

(In thousands of US dollars, except share amounts)



|                                                 |  |                          |   |  |           |   |  |           |  
|------------------------------------------------ |  | ------------------------ | - |  | --------- | - |  | --------- | -
|                                                 |  | Years ended December 31, |  
|                                                 |  | 2003                     |   |  | 2002      |   |  | 2001      |  
|Sales of crude oil and oil products and services |  | 6,975,538                |   |  | 6,390,226 |   |  | 6,260,514 |  
|Lease income                                     |  |                         |   |  | 36,062    |   |  | 10,682    |  
|                                                 |  |                          |   |  |           |   |  |           |  
|                                                 |  | 6,975,538                |   |  | 6,426,288 |   |  | 6,271,196 |  
|                                                 |  |                          |  
|Cost of sales                                    |  | 6,920,177                |   |  | 6,371,465 |   |  | 6,253,009 |  
|Lease expense                                    |  |                         |   |  | 24,004    |   |  | 10,542    |  
|Selling, general and administrative expenses     |  | 18,600                   |   |  | 1,178     |   |  | 114       |  
|                                                 |  |                          |   |  |           |   |  |           |  
|                                                 |  | 6,938,777                |   |  | 6,396,647 |   |  | 6,263,665 |  
|                                                 |  |                          |   |  |           |   |  |           |  
|Gross profit                                     |  | 36,761                   |   |  | 29,641    |   |  | 7,531     |  
|                                                 |  |                          |   |  |           |   |  |           |  
|Financial income                                 |  | 442,878                  |   |  | 219,580   |   |  | 158,804   |  
|                                                 |  |                          |  
|Financial expense                                |  | 482,650                  |   |  | 314,683   |   |  | 187,101   |  
|                                                 |  |                          |  
|Gain on materials and equipment                  |  |                         |   |  |          |   |  | 435       |  
|                                                 |  |                          |   |  |           |   |  |           |  
|Net (loss) for the year                          |  | (3,011                   | ) |  | (65,462   | ) |  | (20,331   | )
|                                                 |  |                          |   |  |           |   |  |           |  
|Weighted average number of shares outstanding    |  | 50,000                   |   |  | 50,000    |   |  | 50,000    |  
|                                                 |  |                          |   |  |           |   |  |           |  



F-4



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##### Table of Contents

PETROBRAS INTERNATIONAL FINANCE COMPANY

AND SUBSIDIARIES

(A wholly-owned subsidiary of PETRÓLEO BRASILEIRO S.A. - PETROBRAS)



CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY

Years
Ended December 31, 2003, 2002 and 2001

(In thousands of US dollars)



|                                                                |  |                   |   |  |                  |   |  |                  |  
|--------------------------------------------------------------- |  | ----------------- | - |  | ---------------- | - |  | ---------------- | -
|                                                                |  | December 31, 2003 |   |  | December 31,2002 |   |  | December 31,2001 |  
|Common stock                                                    |  | 50                |   |  | 50               |   |  | 50               |  
|                                                                |  |                   |   |  |                  |   |  |                  |  
|Additional paid in capital                                      |  |                   |   |  |                  |   |  |                  |  
|Balance at January 1                                            |  | 120,000           |   |  | 60,000           |   |  |                 |  
|Capital contribution from PETROBRAS related to transfer of PNBV |  | 53,926            |   |  |                 |   |  |                 |  
|Conversion of loans to capital                                  |  |                  |   |  | 60,000           |   |  | 60,000           |  
|                                                                |  |                   |   |  |                  |   |  |                  |  
|Balance at end of year                                          |  | 173,926           |   |  | 120,000          |   |  | 60,000           |  
|                                                                |  |                   |   |  |                  |   |  |                  |  
|Accumulated deficit                                             |  |                   |   |  |                  |   |  |                  |  
|Balance at January 1                                            |  | (76,124           | ) |  | (10,662          | ) |  | 9,669            |  
|Loss for the year                                               |  | (3,011            | ) |  | (65,462          | ) |  | (20,331          | )
|                                                                |  |                   |   |  |                  |   |  |                  |  
|Balance at end of year                                          |  | (79,135           | ) |  | (76,124          | ) |  | (10,662          | )
|                                                                |  |                   |   |  |                  |   |  |                  |  
|Total stockholders equity                                      |  | 94,841            |   |  | 43,926           |   |  | 49,388           |  
|                                                                |  |                   |   |  |                  |   |  |                  |  



F-5



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##### Table of Contents

PETROBRAS INTERNATIONAL FINANCE COMPANY

AND SUBSIDIARIES

(A wholly-owned subsidiary of PETRÓLEO BRASILEIRO S.A. - PETROBRAS)



CONSOLIDATED STATEMENT OF CASH FLOWS

Years Ended December 31, 2003, 2002 and
2001

(In thousands of US dollars)

|                                                                     |  |                          |   |  |            |   |  |            |  
|-------------------------------------------------------------------- |  | ------------------------ | - |  | ---------- | - |  | ---------- | -
|                                                                     |  | Years ended December 31, |  
|                                                                     |  | 2003                     |   |  | 2002       |   |  | 2001       |  
|Cash flows from operating activities                                 |  |                          |   |  |            |   |  |            |  
|Net loss for the year                                                |  | (3,011                   | ) |  | (65,462    | ) |  | (20,331    | )
|Adjustments to reconcile net loss to net cash                        |  |                          |   |  |            |   |  |            |  
|Depreciation and amortization                                        |  | 8,346                    |   |  | 9,347      |   |  | 8,041      |  
|Decrease (increase) in assets                                        |  |                          |   |  |            |   |  |            |  
|Accounts receivable                                                  |  |                          |   |  |            |   |  |            |  
|Related parties                                                      |  | (410,756                 | ) |  | (2,069,800 | ) |  | 426,316    |  
|Other                                                                |  | (62,143                  | ) |  | (12,333    | ) |  | (5,132     | )
|Export prepayments  related parties                                 |  | (722,000                 | ) |  |           |   |  | (750,000   | )
|Other assets                                                         |  | (228,234                 | ) |  | (38,205    | ) |  | (65,602    | )
|Increase (decrease) in liabilities                                   |  |                          |   |  |            |   |  |            |  
|Trade accounts payable                                               |  |                          |   |  |            |   |  |            |  
|Related parties                                                      |  | (3,439                   | ) |  | 3,912      |   |  | 217,226    |  
|Other                                                                |  | 82,210                   |   |  | 50,133     |   |  | (362,190   | )
|Other liabilities                                                    |  | 32,398                   |   |  | 83,485     |   |  | (6,916     | )
|                                                                     |  |                          |   |  |            |   |  |            |  
|Net cash provided by (used in) operating activities                  |  | (1,306,629               | ) |  | (2,038,923 | ) |  | (558,588   | )
|                                                                     |  |                          |   |  |            |   |  |            |  
|Cash flows from investing activities                                 |  |                          |   |  |            |   |  |            |  
|Cash rendered in connection with transfer of subsidiary to PETROBRAS |  | (743                     | ) |  |           |   |  |           |  
|Cash acquired in connection with transfer of subsidiary from BRASOIL |  | 2,988                    |   |  |           |   |  |           |  
|Marketable securities, net                                           |  | 80,012                   |   |  | (96,385    | ) |  |           |  
|Issuance of notes receivable                                         |  | (1,400,290               | ) |  | (2,247,658 | ) |  | (1,397,655 | )
|Collection of principal on notes receivable                          |  | 1,231,526                |   |  | 1,422,122  |   |  | 1,210,383  |  
|Assets held for sale                                                 |  |                         |   |  |           |   |  | (144,721   | )
|Property and equipment                                               |  | (28                      | ) |  | (37        | ) |  | (213       | )
|Advances to suppliers                                                |  |                         |   |  | (7,718     | ) |  | (11,309    | )
|Net investment in direct financing activities from related party     |  |                         |   |  | (163,414   | ) |  | (156,017   | )
|                                                                     |  |                          |   |  |            |   |  |            |  
|Net cash used in investing activities                                |  | (86,535                  | ) |  | (1,093,090 | ) |  | (499,532   | )
|                                                                     |  |                          |   |  |            |   |  |            |  
|Cash flows from financing activities                                 |  |                          |   |  |            |   |  |            |  
|Short-term debt, net issuance and repayments                         |  | 566,620                  |   |  | (489,657   | ) |  | 245,075    |  
|Proceeds from issuance of long-term debt                             |  | 2,837,675                |   |  | 657,000    |   |  | 2,165,000  |  
|Principal payments of long - term debt                               |  | (268,371                 | ) |  | (215,000   | ) |  | (10,000    | )
|Proceeds from short term loans - related parties                     |  | 9,618,929                |   |  | 6,861,572  |   |  | 3,654,629  |  
|Principal payments of short term loans  related parties             |  | (10,375,070              | ) |  | (3,469,866 | ) |  | (4,961,129 | )
|Capital contribution                                                 |  | 14,791                   |   |  |           |   |  |           |  
|Dividends paid                                                       |  |                         |   |  |           |   |  | (38,060    | )
|                                                                     |  |                          |   |  |            |   |  |            |  
|Net cash provided by financing activities                            |  | 2,394,574                |   |  | 3,344,049  |   |  | 1,055,515  |  
|                                                                     |  |                          |   |  |            |   |  |            |  
|Increase (decrease) in cash and cash equivalents                     |  | 1,001,410                |   |  | 212,036    |   |  | (2,605     | )
|Cash and cash equivalents at beginning of year                       |  | 260,629                  |   |  | 48,593     |   |  | 51,198     |  
|                                                                     |  |                          |   |  |            |   |  |            |  
|Cash and cash equivalents at end of year                             |  | 1,262,039                |   |  | 260,629    |   |  | 48,593     |  
|                                                                     |  |                          |   |  |            |   |  |            |  



F-6



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##### Table of Contents

PETROBRAS INTERNATIONAL FINANCE COMPANY

AND SUBSIDIARIES

(A wholly-owned subsidiary of PETRÓLEO BRASILEIRO S.A. - PETROBRAS)



CONSOLIDATED STATEMENT OF CASH FLOWS

Years Ended December 31, 2003, 2002 and 2001

(In thousands of US dollars)



|                                                                       |  |                          |  |         |  |        
|---------------------------------------------------------------------- |  | ------------------------ |  | ------- |  | -------
|                                                                       |  | Years ended December 31,
|                                                                       |  | 2003                     |  | 2002    |  | 2001   
|Supplemental disclosures of cash flow information                      |  |                          |  |         |  |        
|Cash paid during the year for:                                         |  |                          |  |         |  |        
|Interest                                                               |  | 337,818                  |  | 322,286 |  | 151,487
|Income taxes                                                           |  | 109                      |  | 213     |  | 77     
|                                                                       |  |                          | 
|Non cash investing and financing activities                            |  |                          |  |         |  |        
|                                                                       |  |                          | 
|Book value of net assets exchanged for inter-company loan              |  | 6,361                    |  |        |  |       
|Capital contribution from PETROBRAS from transfer of PNBV              |  | 39,135                   |  |        |  |       
|Receipt of Junior Trust Certificates in exchange of future receivables |  | 150,000                  |  |        |  | 150,000
|Assets acquired through capital lease obligations                      |  |                         |  | 665,000 |  |       
|Increase of capital through conversion of loan payable                 |  |                         |  | 60,000  |  | 60,000 
|Receipt of notes receivable in exchange of Senior Exchangeable issued  |  |                         |  | 338,416 |  |       



F-7



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##### Table of Contents

PETROBRAS INTERNATIONAL FINANCE COMPANY

AND SUBSIDIARIES

(A wholly-owned subsidiary of PETRÓLEO BRASILEIRO S.A. - PETROBRAS)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of US
dollars)



|1. | The Company and its Operations
|-- | ------------------------------



Petrobras International Finance Company - PIFCo was incorporated in the Cayman Islands on September 24, 1997 and operates as a wholly-owned subsidiary of
PETROBRAS.



The primary objective of Petrobras International
Finance Company and its subsidiaries (the Company) is to purchase crude oil and oil products from third parties and sell the products at a premium to PETROBRAS on a deferred payment basis. Accordingly, intercompany activities and transactions, and
therefore the Companys financial position and results of operations, are affected by decisions made by PETROBRAS. Additionally, to a more limited extent, the Company sells oil and oil products to third parties. PIFCo also engages in
international capital market borrowings as a part of the PETROBRAS strategy.



On January 2, 2003, the Company entered into a series of transactions as part of a larger corporate restructuring implemented by PETROBRAS. The restructuring included the transfer of PETROBRAS NETHERLANDS B. V. - PNBV
to PETROBRAS and the transfer of BEAR INSURANCE COMPANY LIMITED - BEAR from BRASPETRO OIL SERVICES - BRASOIL to PIFCo.



PNBV was transferred to PETROBRAS through an intercompany loan of US$ 4,658, with PNBVs existing cash balance being US$ 743. BEAR was transferred to
the Company in exchange for an intercompany payable to BRASOIL of US$ 1,703, with BEARs existing cash balance being US$ 2,988. The restructuring was undertaken in order to group each business activities more closely with the corporate
goals of the respective companies in the PETROBRAS group.



The
corporate restructurings, which resulted in the transfer of PNBV from PIFCo and the transfer of BEAR to PIFCo, were accounted for under FAS 144 and FAS 141, respectively. Due to the immaterial impact of BEAR on PIFCos consolidated financial
statements, the financial statements of December 31, 2002 have not been restated to reflect this transfer among commonly controlled entities. Additionally, as PNBVs operating result was immaterial, the PIFCo financial statements as of December
31, 2002 have similarly not been restated to reflect discontinued operations for disposal of this component.



F-8



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##### Table of Contents

PETROBRAS INTERNATIONAL FINANCE COMPANY

AND SUBSIDIARIES

(A wholly-owned subsidiary of PETRÓLEO BRASILEIRO S.A. - PETROBRAS)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of US dollars)



|1. | The Company and its OperationsContinued
|-- | ----------------------------------------



In connection with the transfer of PNBV, the Company recognized US$ 39,135 as a capital contribution from PETROBRAS. This amount is equal to the
unamortized portion of the deferred gain of the platform P-47 (US$ 37,271) and the deferred gain on other equipment (US$ 1,864) under similar transaction structures, which upon transfer of PNBV to PETROBRAS was treated as a capital transaction. This
platform was acquired from BRASOIL in December 2001, for its book value of US$ 142,729. On the same date, the P-47 was sold to PB-47, an independent trust, for a market value of US$ 180,000. PB-47 subsequently entered into a charter agreement with
PNBV, which in turn entered into a subcharter agreement with PETROBRAS.



The following is a brief description of each of the Companys wholly-owned subsidiaries:



PETROBRAS FINANCE LIMITED



PETROBRAS FINANCE LIMITED - PFL, is based in the Cayman Islands. PFL purchases bunker and fuel oil from PETROBRAS and sells these products in the
international market in order to generate export receivables to cover the sale of future receivables obligations and to generate additional cash flows in connection with the Companys structured finance export prepayment program.



PETROBRAS EUROPE LIMITED



PETROBRAS EUROPE LIMITED - PEL, based in the United Kingdom, directs
PETROBRAS European trade and finance activities. These activities consist of advising on and negotiating the terms and conditions for crude oil and oil products supplied to PIFCo and PETROBRAS, as well as marketing Brazilian crude oil and
other derivative products exported to the geographic areas in which the Company operates. PEL plays an advisory role in connection with these activities and undertakes no commercial or financial risk.



F-9



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##### Table of Contents

PETROBRAS INTERNATIONAL FINANCE COMPANY

AND SUBSIDIARIES

(A wholly-owned subsidiary of PETRÓLEO BRASILEIRO S.A. - PETROBRAS)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of US dollars)



|1. | The Company and its OperationsContinued
|-- | ----------------------------------------



BEAR INSURANCE COMPANY LIMITED



BEAR INSURANCE COMPANY LIMITED - BEAR, based in Bermuda, contracts insurance for subsidiaries of PETROBRAS.



|2. | Basis of Financial Statement Presentation
|-- | -----------------------------------------



The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US
GAAP).



| | (a) | Foreign currency translation
| | --- | ----------------------------



The functional currency of the Company is the US dollar, as the majority of its transactions are denominated in US dollars. When there are transactions in
foreign currencies, exchange gains and losses resulting from foreign currency transactions are recognized in the statement of operations.



| | (b) | Cash and cash equivalents
| | --- | -------------------------



Cash equivalents consist of highly liquid investments that are readily convertible into cash and have an original maturity of three months or less at
their date of acquisition.



| | (c) | Revenues, costs, income and expenses
| | --- | ------------------------------------



Revenues are recognized in accordance with the volume of crude oil and oil products sold and of services rendered; crude oil and oil products revenues are
recognized on an accrual basis when title has transferred. Costs are recognized when incurred. Income and expenses include financial interest and charges, at official rates or indexes, relating to current and non-current assets and liabilities and,
when applicable, the effects arising from the adjustment of assets to market or realizable value.



F-10



---

##### Table of Contents

PETROBRAS INTERNATIONAL FINANCE COMPANY

AND SUBSIDIARIES

(A wholly-owned subsidiary of PETRÓLEO BRASILEIRO S.A. - PETROBRAS)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of US dollars)



|2. | Basis of Financial Statement PresentationContinued
|-- | ---------------------------------------------------



| | (d) | Current and other assets
| | --- | ------------------------



These are stated at their net realizable values.



| | (e) | Marketable securities
| | --- | ---------------------



The Company accounts for certain investments as held-to-maturity securities in accordance with SFAS 115 - Accounting for Certain Investments in Debt and
Equity Securities (SFAS 115). The securities are carried at their amortized cost.



| | (f) | Inventories
| | --- | -----------



Inventories are stated at the lower of cost or market value.



| | (g) | Deferred financing costs
| | --- | ------------------------



Deferred financing costs associated with various debt issuances are recorded as prepaid expenses and are being amortized over the terms of the related
debt, based on the amount of outstanding debt, using the effective interest method. The unamortized balance of deferred financing costs was US$ 80,513 and US$ 34,497 as of December 31, 2003 and 2002, respectively.



| | (h) | Income taxes
| | --- | ------------



The Company accounts for income taxes using an asset and liability approach, which requires the recognition of taxes payable or refundable for the current
year and deferred tax liabilities and assets representing the future tax consequences of events that have been recognized in the Companys financial statements. The measurement of current and deferred tax liabilities and assets are based on the
provisions of the tax laws in the countries in which the Company and its subsidiaries operate (the United Kingdom, Bermuda and the Cayman Islands in 2003 and United Kingdom, Netherlands and the Cayman Islands in 2002). Deferred tax assets are
reduced by the amount of any tax benefits when, based on the available evidence, such benefit may not be realized. The Cayman Islands and Bermuda have no corporate tax requirements, therefore the Company has no tax provision for the periods. There
were no significant operations in the United Kingdom or the Netherlands that gave rise to taxable income in these countries that would have created temporary differences.



F-11



---

##### Table of Contents

PETROBRAS INTERNATIONAL FINANCE COMPANY

AND SUBSIDIARIES

(A wholly-owned subsidiary of PETRÓLEO BRASILEIRO S.A. - PETROBRAS)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of US dollars)



|2. | Basis of Financial Statement PresentationContinued
|-- | ---------------------------------------------------



| | (i) | Investments in direct financing leases and capital lease obligations
| | --- | --------------------------------------------------------------------



As of January 2, 2003, PNBV, the Companys leasing subsidiary, was transferred to PETROBRAS. Due to this transaction, leasing activities are no
longer included in the Companys results of operations. Prior period financial statements have not been restated for the effect of discontinued leasing operations as amounts related to these transactions were immaterial to PIFCo operations.



Through December 31, 2002, the Company acquired operating
platforms and production equipment under the terms of purchase agreements (see Note 6), purchase invoices and charter agreements and subsequently leased this equipment under the terms of existing and future charter and sub-charter agreements with
related parties. These charter and sub-charter agreements were considered to be Direct Finance Leases in accordance with the provisions of Statement of Financial Accounting Standards No. 13 Accounting for leases (SFAS 13) and
subsequently issued amendments to and interpretations of SFAS 13.





| | (i) | Investments in direct financing leases and capital lease obligationsContinued
| | --- | ------------------------------------------------------------------------------



Income and expense financing leases, consisting of interest income, was recognized over the lease term. Income and expense
from operating leases was recognized ratably over the terms of the leases.



| | (j) | Current and long-term liabilities
| | --- | ---------------------------------



These are stated at known or estimated amounts including, when applicable, accrued interest.



| | (k) | Unearned income
| | --- | ---------------





Unearned income represents the unearned premium charged by the Company to PETROBRAS and ALBERTO PASQUALINI - REFAP S.A.
(REFAP) to compensate for its financing costs. The premium is billed to PETROBRAS and REFAP at the same time the related product is sold, and is deferred and recognized into earnings as a component of financial income on a straight-line basis over
the collection period, which ranges from 120 to 270 days, in order to match the premium billed with the Companys financial expense.



F-12



---

##### Table of Contents

PETROBRAS INTERNATIONAL FINANCE COMPANY

AND SUBSIDIARIES

(A wholly-owned subsidiary of PETRÓLEO BRASILEIRO S.A. - PETROBRAS)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of US dollars)



|2. | Basis of Financial Statement PresentationContinued
|-- | ---------------------------------------------------



| | (l) | Financial instruments
| | --- | ---------------------



All of the Companys derivative instruments are recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings. The ineffective portion of all hedges is recognized in current period earnings.



PIFCo holds a purchased call option that serves as an economic hedge on crude oil related to future sales of receivables under the structured finance
export prepayment program, the intent of which is to assure a minimum floor price of US$14/barrel sufficient to comply with its financial obligations. This option has no intrinsic value and immaterial time value at December 31, 2003, and therefore
does not have a material effect on the Company results or balance sheet.



| | (m) | Recently issued accounting pronouncements
| | --- | -----------------------------------------



In January 2003, FASB issued Interpretation No. 46 - Consolidation of Variable Interest Entities, which was later revised in December 2003 (FIN 46-R). FIN
46-R provides guidance on when certain entities should be consolidated or the interests in those entities should be disclosed by enterprises that do not control them through majority voting interest. Under FIN 46-R, variable interest entities are
required to be consolidated by an enterprise that has a controlling financial interest through an obligation to absorb the majority of expected losses or the right to receive the majority of expected returns. Entities identified with these
characteristics are called variable interest entities and the interest that enterprises have in these entities are called variable interests. These interests may derive from certain guarantees, leases, loans or other arrangements that result in
risks and rewards, which finance the variable interest entities, despite the voting interest in the entities.



The interpretation requires that if a business enterprise has a controlling financial interest in a variable entity, the assets, liabilities and results
of the activities of the variable interest entity must be included in the consolidated financial statements with those of the business enterprise. This interpretation applies immediately to variable interest entities created after January 31, 2003.
FIN 46-R must be adopted for variable interest entities created before February 1, 2003, at the end of the first interim or annual reporting period ended after March 15, 2004. The Company has concluded that it does not have any entities or
transactions that are subject to the requirements of FIN 46-R.



F-13



---

##### Table of Contents

PETROBRAS INTERNATIONAL FINANCE COMPANY

AND SUBSIDIARIES

(A wholly-owned subsidiary of PETRÓLEO BRASILEIRO S.A. - PETROBRAS)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of US dollars)



|3. | Cash and Cash Equivalents
|-- | -------------------------



|                                              |  |           |  |        
|--------------------------------------------- |  | --------- |  | -------
|                                              |  | 2003      |  | 2002   
|Cash                                          |  | 1,312     |  | 1,226  
|Time deposits and short term investment funds |  | 1,260,727 |  | 259,403
|                                              |  |           |  |        
|                                              |  | 1,262,039 |  | 260,629
|                                              |  |           |  |        



At December 31, 2003,
PIFCo had amounts invested in an exclusive fund that held debt securities of PIFCo and PIFCo subsidiaries in the amount of US$ 54,004. These amounts were offset against the balance of financing classified under current and noncurrent liabilities.



Further, this fund held other debt securities in the amount
of US$ 221,909 of other PETROBRAS group companies that are affiliates, but not subsidiaries of the Company, and special purpose companies with which Petrobras has affiliations.



|4. | Marketable Securities
|-- | ---------------------



|                          |  |           |  |          |  |          |  |          |   |  |         |  |          |  
|------------------------- |  | --------- |  | -------- |  | -------- |  | -------- | - |  | ------- |  | -------- | -
|                          |  |           |  |          |  |          |  |          |   |  | Total   | 
|                          |  |           |  |          |  |          |  | Interest |   |  |         |  |          |  
|Security                  |  | Issuer    |  | Maturity |  | Currency |  | rate     |   |  | 2003(*) |  | 2002 (*) |  
|MARLIM 04 (1)             |  | MARLIM    |  | 2004     |  | Dollar   |  | 13       | % |  | 14,700  |  | 29,625   |  
|PETRO 04 (1)              |  | PETROBRAS |  | 2004     |  | Euro     |  | 9        | % |  | 3,260   |  | 2,624    |  
|PETRO 03                  |  | PETROBRAS |  | 2003     |  | Yen      |  | 4        | % |  |         |  | 52,622   |  
|OTHERS                    |  |          |  |         |  |         |  |         |   |  |         |  | 13,101   |  
|                          |  |           |  |          |  |          |  |          |   |  |         |  |          |  
|                          |  |           |  |          |  |          |  |          |   |  | 17,960  |  | 97,972   |  
|Less non-current balances |  |           |  |          |  |          |  |          |   |  |        |  | (36,299  | )
|                          |  |           |  |          |  |          |  |          |   |  |         |  |          |  
|                          |  |           |  |          |  |          |  |          |   |  | 17,960  |  | 61,673   |  
|                          |  |           |  |          |  |          |  |          |   |  |         |  |          |  

---

|(*) | The balances include interest and principal.
|--- | --------------------------------------------

|(1) | The Company classified these investments as held to maturity.
|--- | -------------------------------------------------------------

|
|



F-14



---

##### Table of Contents

PETROBRAS INTERNATIONAL FINANCE COMPANY AND SUBSIDIARIES

(A wholly-owned subsidiary of PETRÓLEO BRASILEIRO S.A. - PETROBRAS)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of US
dollars)



|5. | Related Parties
|-- | ---------------



|                                            |  |                                    |   |  |                                                       |   |  |                                                                    |   |  |                                                  |   |  |                            |  |                             |  |                            |  |        |  |            |   |  |            |   |  |            |  
|------------------------------------------- |  | ---------------------------------- | - |  | ----------------------------------------------------- | - |  | ------------------------------------------------------------------ | - |  | ------------------------------------------------ | - |  | -------------------------- |  | --------------------------- |  | -------------------------- |  | ------ |  | ---------- | - |  | ---------- | - |  | ---------- | -
|                                            |  | PETRÓLEOBRASILEIROS.A. - PETROBRAS |   |  | DOWNSTREAMPARTICIPAÇÕESS.A. and its subsidiaries(iii) |   |  | PETROBRASINTERNATIONALBRASPETRO B.V. -PIB.B.V. and itssubsidiaries |   |  | BRASPETROOILSERVICES -BRASOILand itssubsidiaries |   |  | BRASPETROOIL COMPANY - BOC |  | PETROBRASDISTRIBUIDORA - BR |  | COMPANHIAPETROLIFERAMARLIM |  | Others |  | 2003       |   |  | 2002       |   |  |            |  
|Current assets                              |  |                                    |   |  |                                                       |   |  |                                                                    |   |  |                                                  |   |  |                            |  |                             |  |                            |  |        |  |            |   |  |            |   |  |            |  
|Accounts receivable,                        |  |                                    |   |  |                                                       |   |  |                                                                    |   |  |                                                  |   |  |                            |  |                             |  |                            |  |        |  |            |   |  |            |   |  |            |  
|principally for sales (i)                   |  | 4,746,196                          |   |  | 147,845                                               |   |  | 160,518                                                            |   |  |                                                 |   |  |                           |  | 1,906                       |  |                           |  | 8,007  |  | 5,064,472  |   |  | 4,653,462  |   |  |            |  
|Net investment in direct finance lease      |  |                                   |   |  |                                                       |   |  |                                                                   |   |  |                                                 |   |  |                           |  |                            |  |                           |  |       |  |           |   |  | 183,618    |   |  |            |  
|Notes receivable                            |  | 452                                |   |  |                                                      |   |  | 786,741                                                            |   |  | 341,610                                          |   |  | 259,201                    |  |                            |  |                           |  |       |  | 1,388,004  |   |  | 1,157,930  |   |  |            |  
|Marketable securities (Note 5)              |  | 3,260                              |   |  |                                                      |   |  |                                                                   |   |  |                                                 |   |  |                           |  |                            |  |                           |  | 14,700 |  | 17,960     |   |  | 51,906     |   |  |            |  
|Export prepayment                           |  | 72,482                             |   |  |                                                      |   |  |                                                                   |   |  |                                                 |   |  |                           |  |                            |  |                           |  |       |  | 72,482     |   |  | 1,189      |   |  |            |  
|Others                                      |  |                                   |   |  |                                                      |   |  |                                                                   |   |  |                                                 |   |  |                           |  |                            |  |                           |  |       |  |           |   |  | 970        |   |  |            |  
|                                            |  |                                    |   |  |                                                       |   |  |                                                                    |   |  |                                                 
|Other assets                                |  |                                    |   |  |                                                       |   |  |                                                                    |   |  |                                                  |   |  |                            |  |                             |  |                            |  |        |  |            |   |  |            |   |  |            |  
|Notes receivable                            |  |                                   |   |  |                                                      |   |  | 338,416                                                            |   |  |                                                 |   |  |                           |  |                            |  |                           |  |       |  | 338,416    |   |  | 473,632    |   |  |            |  
|Net investment in direct financing lease    |  |                                   |   |  |                                                      |   |  |                                                                   |   |  |                                                 |   |  |                           |  |                            |  |                           |  |       |  |           |   |  | 832,319    |   |  |            |  
|Export prepayment                           |  | 1,406,850                          |   |  |                                                      |   |  |                                                                   |   |  |                                                 |   |  |                           |  |                            |  |                           |  |       |  | 1,406,850  |   |  | 750,000    |   |  |            |  
|Marketable securities (Note 5)              |  |                                   |   |  |                                                      |   |  |                                                                   |   |  |                                                 |   |  |                           |  |                            |  |                           |  |       |  |           |   |  | 2,370      |   |  |            |  
|Others                                      |  |                                   |   |  |                                                      |   |  |                                                                   |   |  |                                                 |   |  |                           |  |                            |  |                           |  |       |  |           |   |  | 3,349      |   |  |            |  
|                                            |  |                                    |   |  |                                                       |   |  |                                                                    |   |  |                                                 
|Current liabilities                         |  |                                    |   |  |                                                       |   |  |                                                                    |   |  |                                                  |   |  |                            |  |                             |  |                            |  |        |  |            |   |  |            |   |  |            |  
|Trade accounts payable                      |  | 223,019                            |   |  | 4,138                                                 |   |  | 6,865                                                              |   |  | 36,528                                           |   |  |                           |  |                            |  |                           |  | 400    |  | 270,950    |   |  | 291,980    |   |  |            |  
|Notes payable (ii)                          |  | 2,441,401                          |   |  |                                                      |   |  |                                                                   |   |  | 1,377                                            |   |  |                           |  |                            |  |                           |  |       |  | 2,442,778  |   |  | 3,688,249  |   |  |            |  
|Unearned income                             |  | 59,466                             |   |  | 2,400                                                 |   |  |                                                                   |   |  |                                                 |   |  |                           |  |                            |  |                           |  |       |  | 61,866     |   |  | 48,563     |   |  |            |  
|                                            |  |                                    |   |  |                                                       |   |  |                                                                    |   |  |                                                 
|Statement of operations                     |  |                                    |   |  |                                                       |   |  |                                                                    |   |  |                                                  |   |  |                            |  |                             |  |                            |  |        |  |            |   |  |            |   |  | 2001       |  
|Sales of crude oil and oil products         |  | 3,618,804                          |   |  | 804,273                                               |   |  | 1,115,663                                                          |   |  |                                                 |   |  |                           |  | 4,282                       |  |                           |  |       |  | 5,543,022  |   |  | 5,375,484  |   |  | 5,849,883  |  
|Cost of sales                               |  | (1,669,984                         | ) |  | (74,510                                               | ) |  | (783,394                                                           | ) |  | (323,514                                         | ) |  |                           |  |                            |  |                           |  |       |  | (2,851,402 | ) |  | (2,409,034 | ) |  | (1,648,107 | )
|Lease income (expense)                      |  |                                   |   |  |                                                      |   |  |                                                                   |   |  |                                                 |   |  |                           |  |                            |  |                           |  |       |  |           |   |  | 12,058     |   |  | 140        |  
|Selling, general and administrative expense |  | (17,091                            | ) |  |                                                      |   |  |                                                                   |   |  |                                                 |   |  |                           |  |                            |  |                           |  |       |  | (17,091    | ) |  |           |   |  |           |  
|Financial income (expense)                  |  | 202,714                            |   |  | 8,787                                                 |   |  | 51,507                                                             |   |  | 9,176                                            |   |  | 14,387                     |  |                            |  | 3,268                      |  |       |  | 289,839    |   |  | 140,657    |   |  | 88,040     |  

---

Commercial operations between PIFCo and its
subsidiaries and affiliated companies are carried out under normal market conditions and at commercial prices, except for the sales of oil and oil products to PETROBRAS, which have an extended settlement period consistent with PIFCos formation
as a financing entity, and include finance charges incurred during the extended payment period.



The transactions were realized to support the financial and operational strategy of the Companys Parent Company, PETRÓLEO BRASILEIRO S.A. - PETROBRAS.



|(i) | Accounts receivable from related parties relate principally to crude oil sales made by the Company to PETROBRAS, with extended payment terms of up to 270 days.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|(ii) | Notes payable to related parties principally include balances to PETROBRAS for intercompany loans made on a 90 and 180 day basis.
|---- | ---------------------------------------------------------------------------------------------------------------------------------

|
|

|(iii) | On January 2 and 5, 2004, PIFCo received US$ 7,902 and US$ 18,400, respectively, relating to trade accounts receivable from REFAP outstanding in 2003.
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------



F-15



---

##### Table of Contents

PETROBRAS INTERNATIONAL FINANCE COMPANY

AND SUBSIDIARIES

(A wholly-owned subsidiary of PETRÓLEO BRASILEIRO S.A. - PETROBRAS)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of US dollars)



|6. | Restricted Deposits for Guarantees
|-- | ----------------------------------



PIFCo has deposits in guarantee, relating to contractual obligations in financing arrangements. The amount of US$ 69,874 classified in current assets,
relates to a deposit made in connection with the issuance of global notes in the amount of US$ 500,000 (described in note 7) and is renewed annually. The amount classified in non-current assets is comprised of deposits of US$ 29,568 and US$ 38,429
related to issuances of senior notes in the total amount of US$ 450,000 and US$ 600,000, respectively (described in note 7). These guarantees will be maintained through maturity of the related financings.



|7. | Short-Term Financing and Long-Term Debt
|-- | ---------------------------------------



|                                  |  |           |  |           |  |           |  |          
|--------------------------------- |  | --------- |  | --------- |  | --------- |  | ---------
|                                  |  | Current   |  | Long-term
|                                  |  | 2003      |  | 2002      |  | 2003      |  | 2002     
|Financial institutions (i)        |  | 1,015,346 |  | 366,066   |  | 377,550   |  | 460,300  
|Senior notes                      |  | 53,612    |  | 53,647    |  | 1,541,558 |  | 1,550,000
|Sale of future                    |  |           |  |           |  |           |  |          
|Receivables                       |  | 61,764    |  | 577       |  | 1,699,650 |  | 900,000  
|Senior exchangeable               |  |           |  |           |  |           |  |          
|Notes                             |  | 3,840     |  | 3,349     |  | 338,416   |  | 338,416  
|Global step-up notes              |  | 8,951     |  |          |  | 380,077   |  |         
|Global notes                      |  | 4,373     |  |          |  | 1,488,085 |  |         
|                                  |  |           |  |           |  |           |  |          
|                                  |  | 1,147,886 |  | 423,639   |  | 5,825,336 |  | 3,248,716
|                                  |  |           |  |           |  |           |  |          
|Financing                         |  | 852,390   |  | 285,770   |  | 5,825,336 |  | 3,248,716
|Current portion of long term debt |  | 224,002   |  | 81,700    |  |          |  |         
|Accrued interest                  |  | 71,494    |  | 56,169    |  |          |  |         
|                                  |  |           |  |           |  |           |  |          
|                                  |  | 1,147,886 |  | 423,639   |  | 5,825,336 |  | 3,248,716
|                                  |  |           |  |           |  |           |  |          

---

|(i) | The Companys borrowings in US dollars are derived mainly from commercial banks and include trade lines of credit and commercial paper, which are primarily intended for the
purchase of crude oil and oil products, and with interest rates ranging from 2.57% to 5.21% at December 31, 2003. The weighted average borrowing rate for short-term debt at December 31, 2003 and 2002 was 3.85% and 3.44%, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



At December 31, 2003 and 2002, the Company had
fully utilized all available lines of credit for purchase of imports.



F-16



---

##### Table of Contents

PETROBRAS INTERNATIONAL FINANCE COMPANY

AND SUBSIDIARIES

(A wholly-owned subsidiary of PETRÓLEO BRASILEIRO S.A. - PETROBRAS)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of US dollars)



|7. | Short-Term Financing and Long-Term DebtContinued
|-- | -------------------------------------------------



Long term financing  additional information



|                                           |  |                     |  |          |  |                   |  |           |   |  |                |  |          
|------------------------------------------ |  | ------------------- |  | -------- |  | ----------------- |  | --------- | - |  | -------------- |  | ---------
|                                           |  |                     |  |          |  |                   |  |           |   |  | Payment period
|                                           |  | Date of issuance    |  | Maturity |  | Interest rate     |  | Amount    |   |  | Interest       |  | Principal
|Senior Notes (a)                           |  |                     |  |          |  |                   |  |           |   |  |                |  |          
|Senior Notes                               |  | February, 2001      |  | 2007     |  | 9.125%            |  | 400,000   |   |  | semiannually   |  | bullet   
|Senior Notes                               |  | February, 2001      |  | 2007     |  | 9.125%            |  | 100,000   |   |  | semiannually   |  | bullet   
|Senior Notes                               |  | May, 2001           |  | 2008     |  | 9.875%            |  | 450,000   |   |  | semiannually   |  | bullet   
|Senior Notes                               |  | July, 2001          |  | 2011     |  | 9.750%            |  | 600,000   |   |  | semiannually   |  | bullet   
|                                           |  |                     |  |          |  |                   |  |           |   |  |                |  |          
|                                           |  |                     |  |          |  |                   |  |           |   |  |                |  |          
|                                           |  |                     |  |          |  |                   |  | 1,550,000 |   |  |                |  |          
|Senior Notes repurchased (e)               |  |                     |  |          |  |                   |  | (8,442    | ) |  |                |  |          
|                                           |  |                     |  |          |  |                   |  |           |   |  |                |  |          
|                                           |  |                     |  |          |  |                   |  | 1,541,558 |   |  |                |  |          
|                                           |  |                     |  |          |  |                   |  |           |   |  |                |  |          
|Sale of Future receivables (b)             |  |                     |  |          |  |                   |  |           |   |  |                |  |          
|Junior Notes                               |  |                     |  |          |  |                   |  |           |   |  |                |  |          
|Serie 2001-A1                              |  | December, 2001      |  | 2010     |  | 6.75%             |  | 19,000    |   |  | quarterly      |  | bullet   
|Serie 2001-A2                              |  | December, 2001      |  | 2010     |  | Libor 3 M + 1%    |  | 11,000    |   |  | quarterly      |  | bullet   
|Serie 2001-B                               |  | December, 2001      |  | 2011     |  | 6.60%             |  | 60,000    |   |  | quarterly      |  | bullet   
|Serie 2001-C                               |  | December, 2001      |  | 2013     |  | Libor 3 M + 0.85% |  | 60,000    |   |  | quarterly      |  | bullet   
|Serie 2003-B                               |  | May, 2003           |  | 2013     |  | 3.748%            |  | 40,000    |   |  | quarterly      |  | bullet   
|Serie 2003-A                               |  | May, 2003           |  | 2015     |  | 6.436%            |  | 110,000   |   |  | quarterly      |  | bullet   
|                                           |  |                     |  |          |  |                   |  |           |   |  |                |  |          
|                                           |  |                     |  |          |  |                   |  | 300,000   |   |  | (f)            |  |          
|Senior Notes                               |  |                     |  |          |  |                   |  |           |   |  |                |  |          
|Serie 2001-A1                              |  | December, 2001      |  | 2010     |  | 7.8%              |  | 95,000    |   |  | quarterly      |  | quarterly
|Serie 2001-A2                              |  | December, 2001      |  | 2010     |  | Libor 3 M + 2.05% |  | 55,000    |   |  | quarterly      |  | quarterly
|Serie 2001-B                               |  | December, 2001      |  | 2011     |  | 7.65%             |  | 300,000   |   |  | quarterly      |  | quarterly
|Serie 2001-C                               |  | December, 2001      |  | 2013     |  | Libor 3 M + 2.10% |  | 300,000   |   |  | quarterly      |  | quarterly
|Serie 2003-B                               |  | May, 2003           |  | 2013     |  | 5.548%            |  | 190,850   |   |  | quarterly      |  | quarterly
|Serie 2003-A                               |  | May, 2003           |  | 2015     |  | 6.436%            |  | 466,000   |   |  | quarterly      |  | quarterly
|                                           |  |                     |  |          |  |                   |  |           |   |  |                |  |          
|                                           |  |                     |  |          |  |                   |  | 1,406,850 |   |  |                |  |          
|                                           |  |                     |  |          |  |                   |  |           |   |  |                |  |          
|                                           |  |                     |  |          |  |                   |  | 1,706,850 |   |  |                |  |          
|Sale of Future Receivables repurchased (e) |  |                     |  |          |  |                   |  | (7,200    | ) |  |                |  |          
|                                           |  |                     |  |          |  |                   |  |           |   |  |                |  |          
|                                           |  |                     |  |          |  |                   |  | 1,699,650 |   |  |                |  |          
|                                           |  |                     |  |          |  |                  
|Senior Exchangeable Notes(c)               |  | October, 2001       |  | 2007     |  | 4.750%            |  | 338,416   |   |  | semiannually   |  | bullet   
|                                           |  |                     |  |          |  |                  
|Global Step-up Notes                       |  | March, 2003         |  | 2008     |  | 9.000% (d)        |  | 400,000   |   |  | semiannually   |  | bullet   
|Global Step-up Notes repurchased (e)       |  |                     |  |          |  |                   |  | (19,923   | ) |  |                |  |          
|                                           |  |                     |  |          |  |                   |  |           |   |  |                |  |          
|                                           |  |                     |  |          |  |                   |  | 380,077   |   |  |                |  |          
|                                           |  |                     |  |          |  |                  
|Global Notes                               |  |                     |  |          |  |                   |  |           |   |  |                |  |          
|Global Notes                               |  | July, 2003          |  | 2013     |  | 9.125%            |  | 500,000   |   |  | semiannually   |  | bullet   
|Global Notes                               |  | September, 2003 (e) |  | 2013     |  | 9.125%            |  | 256,524   |   |  | semiannually   |  | bullet   
|Global Notes                               |  | December, 2003      |  | 2018     |  | 8.375%            |  | 750,000   |   |  | semiannually   |  | bullet   
|                                           |  |                     |  |          |  |                   |  |           |   |  |                |  |          
|                                           |  |                     |  |          |  |                   |  | 1,506,524 |   |  |                |  |          
|Global Notes repurchased (e)               |  |                     |  |          |  |                   |  | (18,439   | ) |  |                |  |          
|                                           |  |                     |  |          |  |                   |  |           |   |  |                |  |          
|                                           |  |                     |  |          |  |                   |  | 1,488,085 |   |  |                |  |          



F-17



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##### Table of Contents

PETROBRAS INTERNATIONAL FINANCE COMPANY

AND SUBSIDIARIES

(A wholly-owned subsidiary of PETRÓLEO BRASILEIRO S.A. - PETROBRAS)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of US dollars)



|7. | Short-Term Financing and Long-Term DebtContinued
|-- | -------------------------------------------------



Long term financing  additional informationContinued



| | (a) | The three series of Senior Notes issued in 2001 have fixed interest rates with interest payable semi-annually. So long as any note of the issuances remains outstanding, the Company
is prohibited from creating or permitting any lien, other than a PIFCo permitted lien as defined in each of the issuances prospectus, by the Company on any of the Companys assets to secure additional indebtedness, except
under certain conditions. These issuances are general senior unsecured and unsubordinated obligations of the Company and will rank equal in right of payment with all other unsecured and unsubordinated obligations of the Company that are not
expressly subordinated in right of payment. The failure by the Company to make required payments of principal, interest or other amounts will compel PETROBRAS to fulfill payment obligations.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



PETROBRAS entered into standby purchase agreements in support of the
obligations of PIFCo under the issuances and their respective indentures. PETROBRAS has the obligation to purchase from the noteholders any unpaid amounts of principal, interest or other amounts due under the notes and the indenture. This purchase
obligation exists, subject to certain limitations, irrespective of whether any such amounts are due at maturity of the notes or otherwise.



| | (b) | Respective to the Senior and Junior Notes issued pursuant to the structured finance program, PETROBRAS and PFL have certain contracts (Master Export Contract and Prepayment
Agreement) between themselves and a special purpose entity not related to PETROBRAS, PF Export Receivables Master Trust (PF Export), relating to the prepayment of export receivables to be generated by PFL by means of sales on the
international market of fuel oil and other products acquired from PETROBRAS.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-18



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##### Table of Contents

PETROBRAS INTERNATIONAL FINANCE COMPANY

AND SUBSIDIARIES

(A wholly-owned subsidiary of PETRÓLEO BRASILEIRO S.A. - PETROBRAS)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of US dollars)



|7. | Short-Term Financing and Long-Term DebtContinued
|-- | -------------------------------------------------



Long term financing  additional informationContinued



As stipulated in the contracts, PFL assigned the rights to future receivables in the amount of US$ 1,800,000 (1st and 2nd
tranches) to PF Export, which, in turn, issued and delivered to PFL the following securities, also in the amount of US$ 1,800,000:



| |  | US$ 1,500,000 in Senior Trust Certificates, which were negotiated by PFL on the international market at face value. The amount was transferred to PETROBRAS as prepayment for exports
to be made to PFL, according to the prepayment agreement.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | US$ 300,000 in Junior Trust Certificates, which are held in the portfolio of PFL. If PF Export incurs any losses on the receipt of the value of the export receivables transferred by
PFL, these losses will be compensated by the Junior Trust Certificates.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The assignment of rights to future export receivables represents a liability of PFL, which will be settled by the transfer of the receivables to PF Export as and when they are generated. This liability will bear
interest on the same basis as the Senior and Junior Trust Certificates, as described above.



As long as any Senior Trust Certificates or amounts payable to the insurers that are guaranteeing the payments to the holders of the Senior Trust Certificates remain outstanding, PETROBRAS is required to export to the
Company, during each quarterly delivery period, (a) at least 80% of the total volume of heavy fuel oil exported by Petrobras during such period and (b) certain oil products having an aggregate value (as determined by the net invoice amount at which
such products are actually sold by PFL) equal to, at least, the debt service requirements of the Senior Trust Certificates multiplied by a coverage ratio. Moreover, certain additional receivables, as defined in the agreements, are to be generated by
the sale of eligible products to other buyers, to make the aggregate amount of both exports and additional receivables equal to 1.2 times the debt service. PETROBRAS also agrees that its average daily gross exports of heavy fuel oil for any rolling
12-month period will be equal to at least 70,000 barrels.



F-19



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##### Table of Contents

PETROBRAS INTERNATIONAL FINANCE COMPANY

AND SUBSIDIARIES

(A wholly-owned subsidiary of PETRÓLEO BRASILEIRO S.A. - PETROBRAS)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of US dollars)



|7. | Short-Term Financing and Long-Term DebtContinued
|-- | -------------------------------------------------



Long term financing  additional informationContinued



PETROBRAS will not be relieved of its obligations to deliver the oil products under the export prepayment program in the
amounts set forth for any reason, including, but not limited to force majeure or non-payment by PFL.



| | (c) | These notes were issued in connection with PETROBRAS purchase of a controlling interest in Perez Companc S.A. (currently PEPSA) and Petrolera Perez Companc S.A.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | After April 1, 2006, the rate will be set at 12.375% per annum.
| | --- | ---------------------------------------------------------------



| | (e) | The aggregate amount of US$ 54,004 was reclassified from cash and cash equivalents as it relates to the portion of PIFCos debt included in the portfolio of a short-term
investment fund.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (f) | At December 31, 2003, pursuant to clarification from PIFCo legal advisors, the Junior Trust Certificates are presented in full amount rather than following a schedule of
amortization ratably with the Senior Trust Certificates, as previously stated.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Long-term maturities



|           |  |                 
|---------- |  | ----------------
|           |  | December 31,2003
|2005       |  | 259,348         
|2006       |  | 408,878         
|2007       |  | 994,756         
|2008       |  | 990,171         
|2009       |  | 173,218         
|Thereafter |  | 2,998,965       
|           |  |                 
|           |  | 5,825,336       
|           |  |                 



F-20



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##### Table of Contents

PETROBRAS INTERNATIONAL FINANCE COMPANY

AND SUBSIDIARIES

(A wholly-owned subsidiary of PETRÓLEO BRASILEIRO S.A. - PETROBRAS)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of US dollars)



|8. | Fair Value
|-- | ----------



Fair values are derived either from quoted market prices available, or, in their absence, the present value of expected cash flows. The fair values
reflect the cash that would have been received or paid if the instruments were settled at year end. Fair values of cash and cash equivalents, trade receivables, short-term debt and trade payables approximate their carrying values. Fair value for
long-term lines of credit approximates carrying value due to the nature of the transactions.



The Companys long-term debt included US$ 5,825 thousand and US$ 3,248 thousand, of which US$ 5,440 thousand and US$ 2,788 thousand related to senior notes, sales of future receivables, senior exchangeable notes,
global step-up notes and global notes at December 31, 2003 and 2002 and had estimated fair values of US$ 5,898 thousand and US$ 2,702 thousand, respectively.



The Companys long-term asset related to the export prepayment program included US$ 1,707 thousand and US$ 900 thousand at December 31, 2003 and
2002, and had fair values of US$ 1,724 thousand and US$ 900 thousand, respectively.



|9. | Commitments and Contingencies
|-- | -----------------------------



| | (a) | Commitments - Purchases
| | --- | -----------------------



In an effort to ensure procurement of oil products for the Companys customers, the Company currently has several short-term contracts which
collectively obligate it to purchase a minimum of approximately 139,344 barrels of crude oil and oil products per day at market prices.



F-21



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##### Table of Contents

PETROBRAS INTERNATIONAL FINANCE COMPANY

AND SUBSIDIARIES

(A wholly-owned subsidiary of PETRÓLEO BRASILEIRO S.A. - PETROBRAS)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of US dollars)



|9. | Commitments and Contingencies Continued
|-- | ----------------------------------------



| | (b) | Purchase Option  Platforms
| | --- | ---------------------------



The Company has maintained the right to exercise the call option on the existing Subchartered Asset Option Agreements with PNBV, for the Platforms P-8,
P-15, P-32 and P-47, after the expiration of the Charter terms with PNBV. Upon exercise of the call option, the Company will purchase all of the vessels for the greater of (i) the purchase price, any unpaid and accrued charter hire for all of the
vessels, or any costs and expenses which PNBV has incurred or may incur by virtue of any such purchase, and the amount equal to the default amount set forth in each of the charters for all of the Vessels; and (ii) Ten (10) dollars from PNBV,
representation or warranty of any kind or character, and assume and succeed to all rights, duties and obligations of PNBV under the charters.



PIFCo may designate any affiliate or subsidiary to perform its obligations under this agreement.



* * *



F-22