Securities 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:

None

The total number of issued shares of each class of stock of BRASKEMBraskem S.A. as of December 31, 20042007 was: 149,810,870 Common Shares, no par value per share, 298,818,675 Preferred Shares, Class A, no par value per share, and 803,066 Preferred Shares, Class B, no par value per share.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes                         No           If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes                         No                      120,860,099		Common Shares, no par value per share
240,840,451		Preferred Shares, Class A, no par value per share
842,875		Preferred Shares, Class B, no par value per share

Indicate by check mark whether the Registrantregistrant (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 Registrantregistrant 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 whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer                          Accelerated Filer                        Non-accelerated Filer           

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

Indicate by check mark which financial statement item the Registrantregistrant has elected to follow follow.

Item 17  ¨             Item 18        x

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes                         No          

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INTRODUCTION

ReferencesAll references herein to the “real,” “reais” or “R$” are to Brazilianreais(plural) and to the Brazilianreal(singular), the official currency of Brazil; andBrazil. All references to “U.S. dollars,” “dollars” or “US$” are to United StatesU.S. dollars.

All references herein (i)(1) to “we,” “us” or “our company” are references to Braskem S.A. and, its consolidated subsidiaries and (ii)jointly controlled entities, and (2) to “Braskem” are references solely to Braskem S.A.

On December 31, 2004,June 27, 2008, the exchange rate forreaisinto U.S. dollars was R$2.6541.6077 to US$1.00, based on the commercial selling rate as reported by the Central Bank of Brazil (Banco Central do Brasil), or the Central Bank. The commercial selling rate was R$2.8891.7713 to US$1.00 at December 31, 2003.2007, R$2.138 to US$1.00 at December 31, 2006 and the commercial selling rate was R$2.341 to US$1.00 at December 31, 2005, in each case, as reported by the Central Bank. Thereal/U.S. dollar exchange rate fluctuates widely, and the commercial selling rate at December 31, 2003June 27, 2008 may not be indicative of future exchange rates. See “Item 3. Key Information—Exchange Rates” for information regarding exchange rates for the Brazilian currency since January 1, 2000.2003.

Solely for the convenience of the reader, we have translated some amounts included in “Item 3. Key Information—Selected Financial Information” and elsewhere in this annual report fromreaisinto U.S. dollars using the commercial selling rate as reported by the Central Bank at December 31, 20042007 of R$2.6541.7713 to US$1.00. These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or at any other exchange rate. Such translations should not be construed as representations that therealamounts represent or have been or could be converted into U.S. dollars as of that or any other date.

Financial Statements

Braskem Financial Statements

We maintain our books and records inreaisreais..

Our consolidated and combined financial statements at December 31, 20042007 and 20032006 and for each of the three years ended December 31, 2004, 2003 and 20022007 have been audited, as stated in the report appearing herein, and are included in this annual report.

We prepare our consolidated financial statements in accordance with accounting practices adopted in Brazil, or Brazilian GAAP, which are based on:

Brazilian GAAP differs in significantcertain respects from accounting principles generally accepted in the United States, or U.S. GAAP. For more information about thea discussion of certain differences between Brazilian GAAP and U.S. GAAP and a reconciliation of our net income (loss) and shareholders’ equity from Brazilian GAAPrelating to U.S. GAAP,these financial statements, see note 2931 to our audited consolidated and combined financial statements included elsewhere in this annual report.

Consistent with Brazilian GAAP, our audited consolidated and combined financial statements at December 31, 20042007 and 20032006 and for the three years ended December 31, 2004, 2003 and 20022007 have been prepared in accordance with Brazilian Securities CommissionCVM Instruction No. 247/96, as amended, by Brazilian Securities Commission Instruction Nos. 269/97, 285/98 and 319/99, which we refer to collectively asor Instruction 247. Instruction 247

requires our company to proportionally consolidate proportionally jointly controlled companies that are not our subsidiaries but which we jointly control with one or more other shareholders. The U.S. GAAP reconciliation eliminates

     Our consolidated financial statements reflect reclassifications in 2005 of the following items to provide a better comparison among 2006 and 2005:

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• Prior to January 1, 2006, we recorded expenditures for programmed maintenance shutdowns of our plants as “Deferred charges.” Such expenses occur at scheduled intervals from one to six years and are depreciated to production cost until the beginning of the next maintenance shutdown. Beginning January 1, 2006, in accordance with IBRACON Technical Interpretation 01/2006, we recorded all programmed maintenance shutdown expenses in property, plant and equipment as “Machinery, equipment and facilities.” In addition, the retrospective effects of proportional consolidationdepreciation with the adoption of this interpretation was recognized as shareholders’ equity. Accordingly, for those companies that areperiods ending after January 1, 2006, we have reclassified the amount of R$400.2 million from deferred charges to property, plant and equipment, and recognized the amount of R$164.9 million in shareholders’ equity.
  
  
• Prior to January 1, 2006, we recorded quotas subject to mandatory redemption as a separate line item of our balance sheet and not jointly controlled by all voting shareholders.
  as part of loans and financing. Pursuant to CVM Release 01/2006, we now present liabilities related to quotas subject to mandatory redemption as part of loans and financing. Accordingly, short-term loans and financing (including current portion of long-term debt) at December 31, 2005 and 2004 reflect the reclassification of quotas subject to mandatory redemption in the amount of R$225.4 million and R$22.4 million, respectively, and long-term loans and financing at December 31, 2005 and 2004 reflect the reclassification of quotas subject to mandatory redemption in the amount of R$404.1 million and R$201.8 million, respectively.

Copesul Financial Statements

We have included separatePrior to March 31, 2006, we proportionally consolidated the results of Politeno Indústria e Comércio S.A., or Politeno, in our consolidated financial statements. As a result of the Politeno Acquisition described under “Item 4. Information On The Company—History and Development of Our Company—Developments Since January 1, 2005,” we have fully consolidated Politeno’s results in our consolidated financial statements and included Politeno’s results in our Polyolefins segment as from April 1, 2006. Politeno merged with and into Braskem on April 2, 2007.

     Prior to March 31, 2007, we proportionally consolidated the results of Copesul—Companhia Petroquímica do Sul, or Copesul, in our consolidated financial statements. As a result of the Ipiranga Transaction described under “Item 4. Information on the Company—Ipiranga Transaction,” we have fully consolidated Copesul’s results in our consolidated financial statements and included Copesul’s results as a separate segment as from April 1, 2007.

     Copesul and Ipiranga Química S.A., or Ipiranga Química, maintain their books and records inreais and prepare their consolidated financial statements in accordance with Brazilian GAAP.

Copesul Financial Statements

     Prior to April 1, 2007, Copesul’s consolidated financial statements were proportionally consolidated into the Braskem’s consolidated financial statements under Brazilian GAAP, as described above under “—Braskem Financial Statements.” As a result of the Ipiranga Transaction and our obtaining effective management control over the 29.5% of the share capital of Copesul then owned by Ipiranga Petroquímica, we have fully consolidated the results of Copesul and its subsidiaries into our financial statements as from April 1, 2007. As a result of the completion of the first phase of the Petrobras Transaction, the minority interest in Copesul represents only 0.8% of the total share capital of Copesul.

     We have included separate consolidated financial statements of Copesul in this annual report because Copesul constitutesconstituted a “significant” jointly controlled company, accounting for 38.8%85.0% of our income from continuing operations before income taxes in 2004.the three months ended March 31, 2007 and 96.6% in 2006. Copesul maintains its books and records inreais and prepares its financial statements in accordance with Brazilian GAAP.

     Copesul’s consolidated financial statements at December 31, 20042007 and 20032006 and for each of the years ended December 31, 2004, 20032007, 2006 and 20022005 included in this annual report have been audited, as stated in the report appearing herein. Copesul’s consolidated financial statements are proportionally consolidated intoat March 31, 2008 and for each of the Braskem’s consolidated financial statements under Brazilian GAAP, as described above under “—Braskem Financial Statements.”three month periods ended March 31, 2008 and 2007 included in this annual report have not been audited.

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Share Splits

Share Splits

On October 20, 2003, we authorized the split of all of our issued common shares, class A preferred shares and class B preferred shares into 20 shares for each issued share. This 20-for-one share split was effective on October 21, 2003. As a result of this share split, the ratio of our class A preferred shares to American DepositaryDepository Shares, or ADSs, changed from 50 class A preferred shares per ADS to 1,000 class A preferred shares per ADS.

On March 31, 2005, we authorized the reverse split of all of our issued common shares, class A preferred shares and class B preferred shares into one share for each 250 issued shares. This reverse share split became effective on May 16, 2005. In connection with this reverse share split, we authorized a change in the ratio of our ADSs uponADSs. Upon the effectiveness of our reverse share split and the ratio change, the ratio of our class A preferred shares to ADSs changed from 1,000 class A preferred shares per ADS to two class A preferred shares per ADS.

All references to numbers of shares and dividend amounts in this annual report have been adjusted to give effect to the 20-for-one share split and the one-for-250 reverse share split and the change in the ratio of our class A preferred shares to ADSs.split.

Market Share and Other Information

We make statements in this annual report about our market share in the petrochemical industry in Brazil and our production capacity relative to that of other petrochemical producers in Brazil and Latin America. We have made these statements on the basis of information obtained from third partythird-party sources that we believe are reliable. We have calculated our Brazilian market shares with respect to specific products by dividing our domestic net sales volumes of these products by the total Brazilian domestic consumption of these products estimated by the Brazilian Association of Chemical Industry and Derivative Products (Associação Brasileira de Indústrias Químicas e de Produtos Derivados). We derive information regarding the production capacity of other companies in the Brazilian petrochemical industry and the estimated total Brazilian domestic consumption of petrochemical products principally from reports published by the Brazilian Association of Chemical Industry and Derivative Products. Although we have no reason to believe that any of this information is inaccurate in any material respect, neither we nor the initial purchasers have not independently verified the production capacity, market share, market size or similar data provided by third parties or derived from industry or general publications.

Production Capacity and Sales Volume

As used in this annual report:

Rounding

We have made rounding adjustments to reach some of the figures included in this annual report. As a result, numerical figures shown as totals in some tables may not be an arithmetic aggregationaggregations of the figures that precededprecede them.

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CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements. Some of the matters discussed concerning our business operations and financial performance include forward-looking statements within the meaning of the Securities Act or the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act.

Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates” and similar expressions are forward-looking statements. Although we believe that these forward-looking statements are based upon reasonable assumptions, these statements are subject to several risks and uncertainties and are made in light of information currently available to us.

Our forward-looking statements may be influenced by factors, including the following:

Our forward-looking statements are not guarantees of future performance, and theour actual results or other developments may differ materially from the expectations expressed in the forward-looking statements. As for the forward-looking statements that relate to future financial results and other projections, actual results will be different due to the inherent uncertainty of estimates, forecasts and projections. Because of these uncertainties, potential investors should not rely on these forward-looking statements.

We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.

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PART I

ITEM 1. IDENTITY OF DIRECTOR, SENIOR MANAGEMENT AND ADVISER

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

Selected Financial Information

The following selected financial data hashave been derived from our consolidated and combined financial statements.

The selected financial data at December 31, 20042007 and 20032006 and for the three years ended December 31, 20042007 have been derived from our consolidated and combined financial statements included in this annual report. The selected financial data at December 31, 20022005, 2004 and 20012003 and for the yearyears ended December 31, 2001 has2004 and 2003 have been derived from our audited consolidated and combined financial statements that are not included in this annual report. The selected financial data at December 31, 2000

     Prior to the Ipiranga Transaction, we owned 29.5% of the voting and total share capital of Copesul, and we were required, under Brazilian GAAP, to account for the year ended December 31, 2000 have been derived from auditedour interests in Copesul in our consolidated financial statements using the proportional consolidation method, including for the first three months of 2007. As a result of the Ipiranga Transaction and our company that are not includedobtaining effective management control over the 29.5% of the share capital of Copesul then owned by Ipiranga Petroquímica, we have fully consolidated the results of Copesul and its subsidiaries into our financial statements as from April 1, 2007. In addition, as a result of the Ipiranga Transaction, we have consolidated the results of Ipiranga Química and Ipiranga Petroquímica in this annual report.our consolidated financial statements as from April 1, 2007.

Our consolidated financial statements are prepared in accordance with Brazilian GAAP, which differs in significantcertain respects from U.S. GAAP. For a discussion of thecertain differences relating to these financial statements, and a reconciliation of our net income (loss) and shareholders’ equity from Brazilian GAAP to U.S. GAAP, see note 2931 to our audited consolidated and combined financial statements included in this annual report.

5

This financial information should be read in conjunction with “Item 5. Operating and Financial Review and Prospects” and our audited consolidated and combined financial statements included elsewhere in this annual report.Table of Contents

6

All per share data presented below for periods before October 21, 2003 have been adjusted to give effect to the 20-for-one share split that was effective on that date, and all per share data presented below have been further adjusted to give effect to the one-for-250 reverse share split that was effective on May 16, 2005.Table of Contents

		At and for the Year Ended December 31,
		2004(1)				2004				2003				2002				2001(2)				2000
		(in millions of US$, except per share and per ADS amounts and financial ratios)				(in millions ofreais, except per share, number of shares and per ADS amounts and financial ratios)
Zero-rated IPI credit			—				—				—				1,030.1				—				—
Other operating income (expenses)			15.7				41.6				49.7				102.6				103.3				(12.5	)
Operating income (loss)			310.5				824.3				569.0				(1,379.9	)			(117.2	)			300.2
Non-operating expenses, net			(11.2	)			(29.9	)			(4.8	)			(98.0	)			(120.8	)			(0.6	)
Income (loss) before income tax and social contribution (current and deferred) and minority interest			299.3				794.4				564.2				(1,477.9	)			(238.0	)			299.6
Income tax and social contribution (current and deferred)			(29.7	)			(78.9	)			(122.9	)			(89.8	)			(77.6	)			(73.3	)
Income (loss) before minority interest			269.6				715.5				441.3				(1,567.7	)			(315.6	)			226.3
Minority interest			(9.3	)			(24.6	)			(226.2	)			189.0				(108.9	)			1.3
Net income (loss) for the year or period		US$	260.3			R$	690.9			R$	215.1			R$	(1,378.7	)		R$	(424.5	)		R$	227.6
Number of shares outstanding at year end, excluding treasury shares (in thousands):
Common shares							120,860				102,432				98,087				51,735				51,735
Class A preferred shares							240,373				170,379				168,491				86,371				86,371
Class B preferred shares							842				916				916				916				916
Net income (loss) per share at year end			0.72				1.91				0.79				(5.15	)			(3.05	)			1.64
Net income (loss) per ADS at year end (4)			1.44				3.82				1.57				(10.31	)			(6.11	)			3.27
Dividends declared per share:
Common shares			0.21				0.56				—				—				0.43				0.86
Class A preferred shares			0.21				0.56				—				0.13				0.52				0.86
Class B preferred shares			0.21				0.56				—				0.13				0.52				0.52
Dividends declared per ADS			0.42				1.12				—				—				1.04				1.72
U.S. GAAP:
Net income (loss) for the year		US$	334.5			R$	887.8			R$	378.1			R$	(1,144.0	)		R$	(471.0	)
Basic earnings (loss) per share (weighted average):
Common shares			1.04				2.77				1.41				(11.93	)			(6.68	)
Class A preferred shares			1.07				2.83				1.37				—				—
Class B preferred shares			0.19				0.51				0.44				—				—
Basic earnings (loss) per ADS (weighted average)			2.13				5.66				2.74				—				—
Diluted earnings (loss) per share (weighted average)(4):
Common shares		R$	1.04			R$	2.77			R$	1.40			R$	(11.93	)		R$	(6.68	)
Class A preferred shares			1.07				2.83				1.37				—				—
Class B preferred shares			0.19				0.51				0.44				—				—
Diluted earnings (loss) per ADS (weighted average)(4)			2.13				5.66				2.74				—				—
Balance Sheet Data
Brazilian GAAP:
Cash, cash equivalents and other investments		US$	668.2			R$	1,773.8			R$	1,184.3			R$	821.0			R$	513.2			R$	708.9
Trade accounts receivable			515.0				1,366.9				1,216.2				959.0				484.1				231.6
Inventories			578.7				1,536.1				1,071.6				889.1				667.8				163.4
Property, plant and equipment, net			2,033.3				5,397.2				5,352.9				5,296.7				4,429.7				1,969.0
Total assets			5,610.6				14,892.9				13,943.5				13,898.2				9,555.3				3,748.7
Short-term loans and financing (including current portion of long-term debt)			668.9				1,775.6				2,759.2				2,746.1				1,966.4				331.5
Short-term debentures			1.9				5.0				349.0				32.1				26.2				—
Short-term related company debt			—				—				0.2				8.2				88.7				—
Long-term loans and financing			1,149.5				3,051.2				3,615.3				3,891.6				3,101.7				861.8
Long-term debentures			440.0				1,167.9				1,143.0				1,190.2				473.6				—
Long-term related company debt			43.6				115.7				177.6				189.3				626.7				0.9
Minority interest			76.5				203.1				554.4				433.1				738.0				27.4
Share capital			1,282.0				3,403.0				1,887.4				1,845.4				1,201.6				1,203.9
Shareholders’ equity			1,577.6				4,187.5				2,112.6				1,821.8				1,729.0				2,267.8

		At and for the Year Ended December 31,
		2004(1)				2004				2003				2002				2001(2)				2000
		(in millions of US$, except per share and per ADS amounts and financial ratios)				(in millions ofreais, except per share, number of shares and per ADS amounts and financial ratios)
U.S. GAAP:
Total assets		US$	4,830.1			R$	12,821.0			R$	11,058.2			R$	10,531.7			R$	7,803.0
Shareholders’ equity			975.3				2,588.9				7.8				(415.2	)			291.4
Other Financial Information
Brazilian GAAP:
Net cash provided by (used in):
Operating activities		US$	734.3			R$	1,949.0			R$	580.5			R$	790.0			R$	1,453.9			R$	550.3
Investing activities			(378.5	)			(1,004.8	)			(460.4	)			(646.7	)			(862.2	)			(115.6	)
Financing activities			45.0				119.5				367.8				(237.2	)			(404.9	)			(287.2	)
Capital expenditures:
Property, plant and equipment			162.9				432.3				214.7				419.9				318.0				18.4
Interest in other companies			8.9				23.6				71.7				13.1				1,172.3				82.6

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EXCHANGE RATESExchange Rates

Prior to March 14, 2005, there were two principal foreign exchange markets in Brazil:

Most trade and financial foreign-exchange transactions were carried out on the commercial rate exchange market. The floating rate exchange market generally applied to transactions to which the commercial market rate did not apply.

On March 4, 2005, the National Monetary Council (Conselho Monetário Nacional) enacted Resolution No. 3,265, as well as additional regulations, that consolidated the two foreign exchange markets into a single foreign exchange market, effective as of March 14, 2005, in order to make foreign exchange transactions more straight-forwardstraightforward and efficient. Consequently, all foreign exchange transactions in Brazil are now carried out in this single foreign exchange market through authorized financial institutions. We cannot predict the impact of the enactment of any new regulations on the foreign exchange market.

Foreign exchange rates continue to be freely negotiated, but may be influenced from time to time by Central Bank intervention. From March 1995 through January 1999, the Central Bank allowed the gradual devaluationdepreciation of therealagainst the U.S. dollar. In January 1999, the Central Bank allowed thereal/U.S. dollar exchange rate to float freely. Since then, thereal/U.S. dollar exchange rate has been established mainly by the Brazilian interbank market and has fluctuated considerably. From December 31, 19992000 through December 31, 2004,2002, thereal devalueddepreciated by 32.6%80.6% against the U.S. dollar, and atdollar. From December 31, 2002 through December 31, 2007, therealappreciated by 49.9% against the U.S. dollar. At June 24, 2005,27, 2008, the selling rate for U.S. dollars was R$2.3871.6077 per US$1.00. In the past, the Central Bank has intervened occasionally to control unstable movements in foreign exchange rates. We cannot predict whether the Central Bank or the Brazilian government will continue to allow therealto float freely or will intervene in the exchange rate market through a currency band system or otherwise, or that the exchange market will not be volatile as a result of political or economic instability or other factors. We also cannot predict whether therealwill depreciate or appreciate in value in relation to the U.S. dollar in the future.

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The following table shows the commercial selling rate or selling rate, as applicable, for U.S. dollars for the periods and dates indicated. The information in the “Average” column represents the average of the exchange rates on the last day of each month during the periods presented.

Source:Central Bank

RISK FACTORSRisk Factors

Risks Relating to Brazil

Brazilian political and economic conditions, and the Brazilian government’s economic and other policies, may negatively affect demand for our products as well as our net sales revenue and overall financial performance.

The Brazilian economy has been characterized by frequent and occasionally extensive intervention by the Brazilian government and unstable economic cycles. The Brazilian government has often changed monetary, taxation, credit, tariff and other policies to influence the course of Brazil’s economy. The Brazilian government’s actions to control inflation and implement other policies have at times involved wage and price controls, blocking access to bank accounts, imposing capital controls and limiting imports into Brazil.

Our results of operations and financial condition may be adversely affected by factors such as:

Luiz Inácio Lula da Silva of the Workers’ Party took office as President of Brazil on January 1, 2003. The Brazilian government has adopted economic measures that are more conservative than initially expected by some observers. However, the Brazilian government may change these policies in a manner that slows the growth of the Brazilian economy, reducing demand for our products and, consequently, impairing our net sales revenue and overall financial performance. Any negative effect on our overall financial performance would also likely lead to a decrease in the market price of our class A preferred shares and the ADSs.

The Brazilian government’s actions to combat inflation may contribute significantly to economic uncertainty in Brazil and reduce demand for our products.

Historically, Brazil has experienced high rates of inflation. Inflation, as well as government efforts to combat inflation, had significant negative effects on the Brazilian economy, particularly prior to 1995. The inflation rate, as measured by the General Price Index—Internal Availability (Índice Geral de Preços—Disponibilidade Interna), reached 2,708% in 1993. Although inflation rates have been substantially lower since 1994 than in previous periods, inflationary pressures persist. Inflation rates were 10.4% in 2001, 26.4% in 2002, 7.7% in 2003 and 12.1% in 2004, as measured by the General Price Index—Internal Availability. The Brazilian government’s measures to control inflation have often included maintaining a tight monetary policy with high interest rates, thereby restricting availability of credit and reducing economic growth. Inflation, actions to combat inflation and public speculation about possible additional actions also contributed materially to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets.

Brazil may experience high levels of inflation in future periods. Increasing prices for petroleum, the depreciation of thereal and future governmental measures seeking to maintain the value of thereal in relation to the U.S. dollar, may trigger increases in inflation in Brazil. Periods of higher inflation may slow the rate of growth of the Brazilian economy, which would lead to reduced demand for our products in Brazil and decreased

net sales revenue. Inflation also is likely to increase some of our costs and expenses, which we may not be able to pass on to our customers and, as a result, may reduce our profit margins and net income. In addition, high inflation generally leads to higher domestic interest rates, and, as a result, the costs of servicing ourreal-denominated debt may increase, causing our net income to be reduced. Inflation and its effect on domestic interest rates can, in addition, lead to reduced liquidity in the domestic capital and lending markets, which could adversely affect our ability to refinance our indebtedness in those markets. Any decline in our net sales revenue or net income and any deterioration in our financial condition would also likely lead to a decline in the market price of our class A preferred shares and the ADSs.

Fluctuations in interest rates could raise the cost of servicing our debt and negatively affect our overall financial performance.

Our financial expenses are affected by changes in the interest rates that apply to our floating rate debt. At December 31, 2004, we had R$1,175.1 million of loans and financing and debentures that were subject to the Long-Term Interest Rate, R$305.0 million of loans and financing and debentures that were subject to the CDI (Certificado Depositário Interbancário), an interbank rate, and R$1,357.6 million of loans and financing that were subject to LIBOR. The Long-Term Interest Rate (Taxa de Longo Prazo) is a Brazilian long-term interest rate that includes an inflation factor and is determined quarterly by the Central Bank. In particular, the Long-Term Interest Rate and the CDI rate have fluctuated significantly in the past in response to the expansion or contraction of the Brazilian economy, inflation, Brazilian government policies and other factors. For example, in 2004 the CDI rate increased from 16.3% per annum at December 31, 2003 to 17.8% per annum at December 31, 2004. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk.” A significant increase in any of these interest rates could adversely affect our financial expenses and negatively affect our overall financial performance.

Fluctuations in the real/U.S. dollar exchange rate could increase inflation in Brazil, raise the cost of servicing our foreign currency-denominated debt and negatively affect our overall financial performance.

The exchange rate between thereal and the U.S. dollar and the relative rates of depreciation and appreciation of thereal have affected our results of operations and may continue to do so.

The Brazilian currency has devalued often during the last four decades. Throughout this period, the Brazilian government has implemented various economic plans and various exchange rate policies, including sudden devaluations, periodic mini-devaluations (during which the frequency of adjustments has ranged from daily to monthly), exchange controls, dual exchange rate markets and a floating exchange rate system. From time to time, there have been significant fluctuations in the exchange rate between the Brazilian currency and the U.S. dollar and other currencies. For example, thereal depreciated in value against the U.S. dollar by 34.3% in 2002 as compared with appreciation of 22.3% in 2003 and 8.9% in 2004.

Devaluation of thereal relative to the U.S. dollar also could result in additional inflationary pressures in Brazil by generally increasing the price of imported products and services and requiring recessionary government policies to curb demand. In addition, a devaluation of thereal could weaken investor confidence in Brazil and reduce the market price of our class A preferred shares and the ADSs. On the other hand, appreciation of thereal against the U.S. dollar may lead to a deterioration of the country’s current account and the balance of payments and may dampen export-driven growth.

We had total foreign currency-denominated debt obligations in an aggregate amount of R$4,177.8 million (US$1,573.9 million) at December 31, 2004, representing 69.6% of our indebtedness, excluding related party debt, on a consolidated basis. At December 31, 2004, we had US$461.5 million in U.S. dollar-denominated cash equivalents and other investments. At December 31, 2004, we did not have any foreign currency derivative instruments. A significant devaluation of thereal in relation to the U.S. dollar or other currencies could reduce our ability to meet debt service requirements of our foreign currency-denominated obligations, particularly as our net sales revenue is primarily denominated inreais.

In addition, any significant devaluation of thereal will increase our financial expenses as a result of foreign exchange losses that we must record. For example, the 34.3% devaluation of thereal in 2002 substantially increased our financial expenses and was a significant factor in our net loss for that year.

The prices of naphtha, our most important raw material, and of some of our other raw materials are denominated in or linked to the U.S. dollar. In 2004, 67.7% of our direct and indirect cost of sales and services were represented by the cost of naphtha. When thereal depreciates against the U.S. dollar, the cost inreais of our U.S. dollar-linked raw materials increases, and our operating income inreais decreases.

Brazilian government exchange control policies could increase the cost of servicing our foreign currency-denominated debt and impair our liquidity

The purchase and sale of foreign currency in Brazil is subject to governmental control. In the past, the Central Bank has centralized certain payments of principal on external obligations. Many factors could cause the Brazilian government to institute more restrictive exchange control policies, including the extent of Brazil’s foreign currency reserves, the availability of sufficient foreign exchange on the date a payment is due, the size of Brazil’s debt service burden relative to the economy as a whole, Brazil’s policy towards the International Monetary Fund and political constraints to which Brazil may be subject. A more restrictive policy could increase the cost of servicing (and thereby reduce our ability to pay) our foreign currency-denominated debt obligations and other liabilities. Our foreign-currency denominated debt represented 69.6% of our indebtedness on a consolidated basis at December 31, 2004. If we fail to make payments under any of these obligations, we will be in default under those obligations, which could reduce our liquidity as well as the market price of our class A preferred shares and the ADSs.

Changes in tax laws may result in increases in certain direct and indirect taxes, which could reduce our gross margin and negatively affect our overall financial performance.

The Brazilian government regularly implements changes to tax regimes that may increase our and our customers’ tax burdens. These changes include modifications in the rate of assessments and, on occasion, enactment of temporary taxes, the proceeds of which are earmarked for designated governmental purposes. In April 2003, the Brazilian government presented a tax reform proposal, which was mainly designed to simplify tax assessments, to avoid internal disputes within and between the Brazilian states and municipalities, and to redistribute tax revenues. The tax reform proposal provided for changes in the rules governing the federal Social Integration Program (Programa de Integração Social), or PIS, the federal Contribution for Social Security Financing (Contribuição para Financiamento da Seguridade Social — COFINS), or COFINS, the Tax on the Circulation of Merchandise and Services (Imposto Sobre a Circulação de Mercadorias e Serviços), or ICMS, the Tax on Bank Account Transactions (Contribuição Provisória sobre Movimentação ou Transmissão de Valores e de Créditos e Direitos de Natureza Financeira), or CPMF, and some other taxes.

In December 2003, the Brazilian Federal Senate approved part of this tax reform proposal following its approval by the Brazilian Federal House of Representatives. Other parts of the tax reform proposal were amended by the Senate and returned to the House of Representatives for further examination. The amendments to the tax reform proposal and other items pending before the Brazilian legislature were consolidated in a Project for Constitutional Amendment (Projeto de Emenda Constitucional). We expect that the Project for Constitutional Amendment will be reviewed and submitted to a vote of the House of Representatives in the near future. Upon approval by both houses of the Brazilian legislature, the Project for Constitutional Amendment will be submitted to the President for his review and execution. If enacted, these tax reform measures will be gradually adopted beginning in 2005 and continuing through 2007. The effects of these proposed tax reform measures and any other changes that result from enactment of additional tax reforms have not been, and cannot be, quantified. However, some of these measures, if enacted, may result in increases in our overall tax burden, which could reduce our gross margin and negatively affect our overall financial performance.

Risks Relating to Our Company and the Petrochemical Industry

The cyclical nature of the petrochemical industry may reduce our net sales revenue and gross margin.

The Brazilian petrochemical industry, including the markets in which we compete, is cyclical and sensitive to changes in supply and demand that are, in turn, affected by political and economic conditions in Brazil and elsewhere. This cyclicality may reduce our net sales revenue and gross margin. In particular:

The global petrochemical industry is also cyclical. Historically, the international petrochemical markets have experienced alternating periods of limited supply, which have caused prices and profit margins to increase, followed by expansion of production capacity, which has resulted in oversupply and reduced prices and profit margins. The Brazilian petrochemical industry has become increasingly integrated with the global petrochemical industry for a number of reasons, including increased demand for, and consumption of, petrochemical products in Brazil and the ongoing integration of regional and world markets for commodity products. Pricescommodities. We establish the prices for ourthe products soldwe sell in Brazil are established with reference to international market prices. Our net sales revenue and gross margin are increasingly linked to global industry conditions that we cannot control.

We face competition from producers of polyolefins, vinyls and other petrochemical products.

We face competition in Brazil from Brazilian and international producers of polyethylene, polypropylene, vinyls and other petrochemical products. In addition, ourwe generally set the prices for our second generation products are generally set with reference to the prices charged for these products by foreign producers in international markets. We anticipate that we may experience increasingly intense competition from internationalother producers of polyolefins and vinyls products, both in Brazil and in selected foreign markets in which we sell these products. Many of our foreign competitors are substantially larger and have substantially greater financial, manufacturing, technological and marketing resources than our company.

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We face significant competition in the polyethylene market. Rio Polímeros S.A., or Rio Polímeros, a Brazilian petrochemical company, commenced operations on June 23,of a major petrochemical plant in Brazil in 2005. The announcedmaximum annual capacity of this plant is 520,000 tons of ethylene, 75,000 tons of propylene and 540,000 tons of polyethylene (representing an increase of approximately 35% of the current total Brazilianpolyethylene. In addition, Suzano Petroquímica S.A., or Suzano, expanded its annual polypropylene production capacity of polyethylene). In addition,by 60,000 tons in July 2006, and Solvay Indupa do Brasil S.A., or Solvay, has announced that it will expandexpanded its annual polyvinylchloride, or PVC, production capacity in Brazil by 35,000 tons commencing in the second half ofDecember 2005. Actions by our competitors, including any future increases in their capacity, may make it increasingly difficult for us to maintain our domestic market share in ourthe thermoplastic products we produce (polyethylene, polypropylene and PVC).

Higher naphtha costs would increase our cost of sales and services rendered and may reduce our gross margin and negatively affect our overall financial performance.

Naphtha, a crude oil derivative, is the principal raw material of our Basic Petrochemicals Unit and Copesul and, indirectly, of our other business units. In 2004, naphthaNaphtha accounted, directly and indirectly, for approximately two-thirds76.3% of our consolidated cost of sales and services rendered.rendered in 2007. The price of naphtha supplied by Petrobras—Petróleo Brasileiro S.A.,—Petrobras, or Petrobras, is linked to the Amsterdam-Rotterdam-Antwerp market price of naphtha and to thereal/U.S. dollar exchange rate. The price of naphtha that we purchase from other international suppliers is also linked to the Amsterdam-Rotterdam-Antwerp market price. The Amsterdam-Rotterdam-Antwerp market price of naphtha fluctuates primarily based on changes in the U.S. dollar-based price of crude oil in the international markets.

During 2004,2007, the average price of naphtha in U.S. dollars increased by 22.9%, from19.7% to US$313.00676.05 per ton in December 2003 to2007 from US$387.05564.74 per ton in December 2004.2006. The U.S. dollar price of naphtha was volatile during 2004, increasing substantially between February and October before declining2007, ranging from a low of US$509.66 per ton in November andJanuary 2007 to a high of US$837.53 per ton in December of 2004. The2007. Since December 31, 2007, the price of naphtha in U.S. dollars continuedhas increased to increase after December 31, 2004, reaching US$394.861,092.85 per ton at January 31, 2005, US$416.23 per ton at February 28, 2005, US$477.43 per ton at March 31, 2005, and US$521.00 per ton at April 4, 2005. Following April 4, 2005, the price of naptha in U.S. dollars has declined to US$438.50 per ton at April 30, 2005 and US$406.00 per ton at MayJune 27, 2005.2008. The price of naphtha may increase significantlycontinue its upward trend or thereal may devaluedepreciate significantly in the future. AnAny increase in naphtha costs would reduce our gross margin and negatively affect our overall financial performance to the extent that we are unable to pass on these increased costs to our customers and could result in reduced sales volumes of our products.

We do not hedge against changes in naphtha prices, so that we are exposed to fluctuations in the price of our primary raw material.

We currently do not hedge our exposure to fluctuations in naphtha prices, which are linked to thereal/U.S. dollar exchange rate. Although we attempt to pass on increases in naphtha prices through thehigher prices offor our products, in periods of high volatility in the U.S. dollar price of naphtha or thereal/U.S. dollar exchange rate, there is usually a lag between the time that the U.S. dollar price of naphtha increases or the U.S. dollar appreciates and the time that we may effectively pass on those increased costs inreaisto our customers in Brazil. As a result, if the U.S. dollar price of naphtha increases precipitously or therealdepreciates precipitously against the U.S. dollar in the future, we may not immediately be able to pass on all of the corresponding increases in our naphtha costs to our customers in Brazil, which would likely reduce our gross margin and net income.

We depend on Petrobras to supply us with the substantial portion of our naphtha requirements.

Petrobras currently is the only Brazilian supplier of naphtha and supplied 62.3%61.1% of the naphtha consumed by our company in 2004.2007. Petrobras produces somemost of the naphtha it sells to us and imports the balance. Our production volume and net sales revenue would likely decrease and our overall financial performance would likely be negatively affected in the event of:

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In addition, although regulatory changes have ended Petrobras’ monopoly in the Brazilian naphtha market and have allowed us to import naphtha, any reversal in the continuing deregulation of the oil and gas industry in Brazil could increase our production costs.

Our Polyolefins, Ipiranga Petroquímica and Vinyls Units depend on our Basic Petrochemicals Unit and Copesul to supply them with their ethylene and propylene requirements.

Our Basic Petrochemicals Unit is the only supplier of ethylene to our Vinyls Unit, andUnit; our Basic Petrochemicals Unit and Copesul are the only suppliers of ethylene and propylene to our Polyolefins Unit.Unit; and Copesul is the only supplier of ethylene and propylene to Ipiranga Petroquímica. Because the cost of storing ethylene and propylene is substantial and there is inadequate infrastructure in Brazil to permit the importation of large quantities of these products, our production volumes of, and net sales revenue from, vinyls and polyolefins products would decrease, and our overall financial performance would be negatively affected, in the event of:

In addition, any significant expansion of the production capacity of our Polyolefins Unit in the Southern Complex will depend on our ability to obtain additional ethylene and propylene from Copesul.

Any downgrade in the ratings of our company or our debt securities would likely result in increased interest and other financial expenses related to our borrowings and debt securities and could reduce our liquidity.

Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., or Standard and& Poor’s, Moody’s Investors Service, or Moody’s and Fitch, Inc., or Fitch, maintain ratings of our company and our debt securities. Currently, Standard and& Poor’s, Moody’s and Fitch maintain ratings of our company on a local basis and Standard & Poor’s also maintains ratings of our company on a global basis. Standard and& Poor’s maintains a rating of our company on a local basis of “Br AA-“br AA+/Stable Outlook,” Moody’s maintains a rating of our company on a local basis of “Aa2.br/Stable Outlook” and Fitch maintains a nationallocal rating for our company of “AA-“AA (bra)./Positive Outlook.” On a global basis, Standard and& Poor’s maintains a local currency rating for our company of “BB”“BB+ (stable)” and a foreign currency rating for our company of “BB-“BB+ (stable),” whileMoody’s maintains a local currency rating for our company of “Ba1” and a foreign currency rating for our company of “Ba1” and Fitch maintains a local currency rating for our company of “BB+”/Positive Outlook” and a foreign currency rating for our company of “BB-.“BB+/Positive Outlook.” Any decision by these or other rating agencies to downgrade the ratings of our company or of our debt securities in the future would likely result in increased interest and other financial expenses relating to our borrowings and debt securities and could significantly reduce our ability to obtain such financing on satisfactory terms or in amounts required by us and our liquidity.

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Some of our shareholders may have the ability to determine the outcome of corporate actions or decisions, which could affect the holders of our class A preferred shares and the ADSs.ADS.

TheOdebrecht S.A., or Odebrecht, a member of a group of companies controlled by the Odebrecht family, which we refer to as the Odebrecht Group, holds, directly holds 47.5%and indirectly, 60.3% of our voting share capital and its designees currentlyPetrobras holds, directly and indirectly, 30.0% of our voting share capital. Designees of Odebrecht constitute a majority of the members of our board of directors. In addition, the Odebrecht Group owns 62.5% of the voting share capital of Nordeste Química S.A.—Norquisa, or Norquisa, which owns 25.4% of our voting share capitaldirectors, and 9.1% of our total share capital. Some of our other shareholders, consisting of PetrobrásPetrobras and Petrobras Química S.A., or Petroquisa, a subsidiary of Petrobras, and two Brazilian pension funds, have veto and other rights under shareholders agreementsthe Petrobras Shareholders’ Agreement as described under “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders—Shareholders Agreements.” In addition, Petroquisa has an option to purchase up to 30% of our voting share capital, which, if exercised, would give Petroquisa substantial voting and other rights in respect of our company. As a result, the Odebrecht, Group,Petrobras and Petroquisa and these other shareholders maywill have the ability to determine the outcome of major corporate actions or decisions requiring the approval of our shareholders or our board of directors, which could affect the holders of the our class A preferred shares and the ADSs.ADS.

We may face conflicts of interest in transactions with related parties.

We maintain trade accounts receivable and current and long-term payables with some of our affiliates and other related parties, including Petrobras (which is our sole domestic supplier of naphtha), Copesul in the Southern Complex (which supplies us with ethylene and propylene), and Politeno Indústria e Comércio S.A., or Politeno (which purchases ethylene from our company). ThroughCurrently, Petrobras, through Petroquisa, Petrobras is the indirect holder of 10.0%30.0% of our voting share capital and 8.4%23.1% of our total share capital. These accounts receivable and accounts payable balances result mainly from purchases and sales of goods, which are at prices and on terms equivalent to the average terms and prices of transactions that we enter into with third parties. We also engage in financial and other transactions with some of our shareholders, such as the grant of the Petroquisa option discussed above.shareholders. These and other commercial and financial transactions between us and our affiliates could result in conflicting interests.

We may make significant acquisitions which, if not successfully integrated with our company, may adversely affect our operating results.

     We may make significant acquisitions in the future, in addition to the Ipiranga Transaction, to continue our growth. Acquisitions involve risks, including the following:

• failure of acquired businesses to achieve expected results;
  
  
• possible inability to retain or hire key personnel of acquired businesses;
  
  
• possible inability to achieve expected synergies and/or economies of scale;
  
  
• unanticipated liabilities; and
  
  
• antitrust considerations.
  

     If we are unable to integrate or manage acquired businesses successfully, we may not realize anticipated cost savings, revenue growth and levels of integration, which may result in reduced profitability or operating losses.

     For a discussion of risks specifically pertaining to the Ipiranga Transaction, see “—Risks Relating to the Ipiranga Transaction.”

Future adjustments in tariffs on imports that compete with our products could cause us to lower our prices.

We take into account, when setting the domestic prices for our products, tariff ratescurrently benefit from tariffs imposed by the Brazilian government on imports of similar products and the products of our customers. We currently benefit

from tariffs that allow us to charge lower prices for our polyolefins and vinyls products thanin the domestic market that include a factor based on the tariffs levied on comparable imports of those products. Our margins from sales in the Brazilian market are therefore significantly higher than our margins from exports. However, the Brazilian government has in the past used import and export tariffs to effect economic policies, with the consequence that tariffs can vary considerably, especially tariffs on petrochemical products. For example, in 2004 the Brazilian government lowered the tariffs applicable to most of the thermoplastic products that we produce by 1.5%. Future adjustments of tariffs could cause us to lower our domestic prices, which would likely result in lower net sales revenue and could negatively affect our overall financial performance.

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Our business is subject to stringent environmental regulations, and imposition of new regulations could require significant capital expenditures and increase our operating costs.

Our company, like other Brazilian petrochemical producers, is subject to stringent Brazilian federal, state and local environmental laws and regulations concerning human health, the handling and disposal of solid and hazardous wastes and discharges of pollutants into the air and water. Petrochemical producers are sometimes subject to unfavorable market perceptions as a result of the environmental impact of their business, which can have an adverse effect on their results of operations. As environmental laws become more stringent in Brazil and worldwide, the amount and timing of future expenditures required for us to remain compliant could increase substantially and could decrease the availability of funds for other capital expenditures and other purposes.

We manufacture products that are subject to the risk of fire, explosions and other hazards.

Our operations are subject to hazards, such as fires, explosions and other accidents, associated with the manufacture of petrochemicals and the storage and transportation of feedstocks and petrochemical products. These hazards can cause personal injury and loss of life, severe damage to or destruction of property and equipment and environmental damage. A sufficiently large accident at one of our plants or storage facilities could force us to suspend our operations temporarily and result in significant remediation costs and lost net sales revenue. Although we maintain insurance coverage for losses due to fire damage and for losses of income resulting from shutdowns due to fire, explosion or electrical damage, those insurance proceeds may not be available on a timely basis and may be insufficient to cover all losses.

The Brazilian antitrust authorities could impose costly or restrictive conditions on the approval of the formation of our company.

As part of our corporate reorganization process that began in 2001, we merged with each of OPP Química, Trikem, Proppet S.A., or Proppet, and Nitrocarbono S.A., or Nitrocarbono, and we acquired Polialden. We closed these transactions, as permitted by Brazilian law, subject to the final approval of the Brazilian antitrust authorities. We have submitted the terms and conditions of these transactions to the Brazilian antitrust authorities. These antitrust authorities will determine whether these transactions negatively impact competitive conditions in the markets in which we compete or whether they would negatively affect consumers in these markets. Although two of the three Brazilian antitrust authorities have issued non-binding opinions recommending the unconditional approval of these corporate reorganization transactions, the third and governing antitrust authority continues to review this matter and may disagree with these opinions and impose conditions or performance commitments on our company. Any adverse decision by the Brazilian antitrust authorities could materially adversely affect our business and negatively affect our overall financial performance.

Unfavorable outcomes in pending litigation may reduce our liquidity and negatively affect our financial performance and financial condition.

We are involved in numerous tax, civil and labor disputes involving significant monetary claims. If unfavorable decisions are rendered in one or more of these lawsuits, we could be required to pay substantial amounts, which could materially adversely affect our financial condition and results of operations. For some of these lawsuits, we have not established any provision on our balance sheet or have established provisions only for part of the amounts in question, based on our judgments aboutor opinions of our legal counsel as to the likelihood of winning these lawsuits.

The principal lawsuits for which we have not established provisions or have established only partial provisions include the following:

• IPI Credits on Raw Materials Purchases.We have challenged the constitutionality of the Brazilian federal tax authorities’ interpretation of the regulations governing the assessment of theImposto sobre ProdutosIndustrializados, or IPI, tax (a federal value-added tax on industrial products). In December 2002, the Brazilian Federal Supreme Court held that OPP Química S.A., or OPP Química, was entitled to IPI tax credits in an aggregate amount of R$1,030.1 million. We have recognized these tax credits and have used the full amount of these tax credits to offset IPI and other federal tax obligations. In a procedural decision on December 11, 2007 that has not yet been published, the Brazilian Federal Supreme Court held that a new judgment should be rendered and, in view of the importance of the matters raised by our lawsuit, the parties were granted an opportunity to make new oral arguments concerning the matter. Upon publication of this decision, we intend to determine whether to appeal this decision. However, despite the possibility of the Brazilian Federal Supreme Court’s review of the merits of its former decision and its ruling against us, we and our counsel believe that the December 2002 decision should nonetheless be givenres judicata(i.e., final and binding) effect. The tax credits used by us following the earlier decision of the Brazilian Federal Supreme Court (as adjusted by applying theSistema Especial de Liquidação e de Custódia, or SELIC, interest rate through December 2007) amount to R$2,506.9 million at December 31, 2007. The various collection proceedings instituted by the Brazilian federal tax authorities based on their interpretation of the regulations that is in dispute have claimed R$2,263.5 million as of December 31, 2007, plus fines in the aggregate amount of R$731.0 million. We have not established a provision for these tax claims against us.
  
  
• Social Contribution on Net Income. We have challenged the constitutionality of the Brazilian federal Social Contribution on Net Income (Contribuição Social Sobre o Lucro Líquido), or CSLL. A Brazilian Federal Supreme Court (Supremo Tribunal Federal) decision in our favor was overruled in a subsequent rescission action filed by the Brazilian tax authorities, and our appeal of that suit is pending. We believe that it is reasonably possible that we will lose our appeal. If we lose our appeal, we believe that we would be required to pay CSLL only from the date that a final decision is published. However, as Brazilian law allows rescission actions to relate back to, and to take effect from, the date of the initial decision, we believe that it is reasonably possible that we will be required to pay this tax from the date of the original decision, in which case our total estimated exposure at December 31, 2007, including interest, would be R$809.3 million. This amount does not include approximately R$242.4 million in penalties at December 31, 2007 that we believe we would not be required to pay because we relied upon a judicial decision in not paying the CSLL. We believe that there is a possibility that we will be required to pay related interest and a remote possibility that we will be required to pay fines as a result of this tax litigation. We have not established a provision for these lawsuits.
  

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• Cost of Living Adjustments on Workers’ Wages. The unions that represent employers and workers at the facilities located in the Northeastern Complex, are involved in a lawsuit over the indices we and other companies have used for cost of living adjustments on workers’ wages since early 1990. As we believe that it is not probable that the employers’ union will lose this lawsuit, we have not recorded a provision in respect of this suit. If the employers’ union loses this lawsuit and we are required to pay damages from April 1990 to September 1990, we estimate that we could be subject to liability of up to R$35.0 million, although additional claims would have to be brought by the workers’ union or individual employees to quantify the amount of damages that we would be required to pay. We have not established a provision for this lawsuit.

In addition, we and some of our subsidiaries believe that our chances of success are remote in a series of lawsuits in which we challenged the constitutionality of an increase in the federal Contribution for Social Security Financing (Contribuição para Financiamento da Seguridade Social—COFINS), or COFINS, tax rate. For a description of the legal bases of these suits, see “Item 8. Financial Information—Legal Proceedings—Tax Proceedings.” We had established total provisions of R$320.650.6 million at December 31, 20042007 for all of our lawsuits relating to the Social Integration Program (Programa de Integração Social), or PIS, and COFINS, including separate lawsuits challenging the basis of calculation of PIS and COFINS. Because we have deposited only R$62.523.8 million of this amount with the courts, we would be required, in the event we and our subsidiaries receive final, unfavorable decisions, to pay the remaining amounts for which we have not made deposits.

We are also parties to a number of lawsuits seeking tax credits that we believe the Brazilian tax authorities have disallowed or limited in violation of the Brazilian Constitution and/or applicable law. In some cases wherein which we have received favorable lower court decisions, we have used these credits to offset other tax obligations and have established provisions in an equivalent amount until a final decision is rendered (adjusting theserendered. These provisions totaled R$1,145.8 million at December 31, 2007, as adjusted based on the SELIC (Sistema Especial de Liquidação e de Custódia—SELIC), or SELIC interest rate). These provisions totaled R$904.5 million at December 31, 2004.rate. If we ultimately lose any of these lawsuits, we would be required to pay the tax obligations we had previously offset with those credits, which could materially reduce our liquidity. We believe that losses related to some of these lawsuits are reasonably possible.

For more information about our legal proceedings, see “Item 8. Financial Information—Legal Proceedings.”

Risks Relating to the Ipiranga Transaction

We may experience difficulties in integrating Copesul, Ipiranga Química and Ipiranga Petroquímica and, therefore, may fail to achieve the anticipated benefits from the Ipiranga Transaction.

     On March 18, 2007, we entered into agreements with Ultrapar Participações S.A., or Ultrapar, and Petrobras under which, among other things, we acquired control of Ipiranga Química and Ipiranga Petroquímica, and indirect control of the 29.5% of Copesul’s share capital owned by Ipiranga Petroquímica. To complete the transfer of these shares, we entered into a series of transactions comprising the Ipiranga Transaction. For a discussion of these transactions, see “Item 4. Information on the Company—Ipiranga Transaction.” As a result of the substantial completion of the Ipiranga Transaction:

• we own, directly and indirectly, shares of Copesul representing 62.7% of the total and voting share capital of Copesul; and

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Risks Relating to Our Class A Preferred Shares and the ADSs

Our class A preferred shares and the ADSs have limited voting rights.

Under the Brazilian Corporation Law and our by-laws, holders of our class A preferred shares and, consequently, the ADSs are not entitled to vote at meetings of our shareholders, except in very limited circumstances. These limited circumstances directly relate to key rights of the holders of class A preferred shares, such as modifying basic terms of our class A preferred shares or creating a new class of preferred shares with superior rights. Holders of preferred shares without voting rights are entitled to elect one member and his or her respective alternate to our board of directors and our fiscal council. However, until our general shareholders meeting in 2006, any member elected to our board of directors by these preferred shareholders must be selected from a list of three nominees chosen by our controlling shareholder. Holders of our class A preferred shares and the ADSs are not entitled to vote to approve corporate transactions, including mergers or consolidations of our company with other companies.

Holders of the ADSs may find it difficult to exercise even their limited voting rights at our shareholders’ meetings.

Holders may exercise the limited voting rights with respect to our class A preferred shares represented by the ADSs only in accordance with the deposit agreement relating to the ADSs. There are practical limitations upon the ability of ADS holders to exercise their voting rights due to the additional steps involved in communicating with ADS holders. For example, we are required to publish a notice of our shareholders’ meetings in certain newspapers in Brazil. To the extent that holders of our class A preferred shares are entitled to vote at a shareholders’ meeting, they will be able to exercise their voting rights by attending the meeting in person or voting by proxy. By contrast, holders of the ADSs will receive notice of a shareholders’ meeting by mail from the depositary following our notice to the ADR depository requesting the ADR depository to do so. To exercise their voting rights, ADS holders must instruct the depositary on a timely basis. This noticed voting process will take longer for ADS holders than for holders of class A preferred shares. If it fails to receive timely voting instructions for all or part of the ADSs, the depositary will assume that the holders of those ADSs are instructing it to give a discretionary proxy to a person designated by us to vote their ADSs, except in limited circumstances.

In the limited circumstances in which holders of the ADSs have voting rights, they may not receive the voting materials in time to instruct the depositary to vote our class A preferred shares underlying their ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions of the holders of the ADSs or for the manner of carrying out those voting instructions. Accordingly, holders of the ADSs may not be able to exercise voting rights, and they will have no recourse if the class A preferred shares underlying their ADSs are not voted as requested.

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Exchange controls and restrictions on remittances abroad may adversely affect holders of the ADSs and the underlying class A preferred shares.

Brazilian law provides that whenever there is a significant imbalance in Brazil’s balance of payments or a significant possibility that such imbalance will exist, theThe Brazilian government may impose temporary restrictions on the remittance to foreign investors of the proceeds of their investment in Brazil (as it did for approximately six months in 1989 and early 1990) and on the conversion of Brazilian currency into foreign currencies.currencies and on the remittance to foreign investors of proceeds of 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.

     These restrictions could hinder or prevent the Brazilian custodian of the class A preferred shares underlying the ADSs or holders who have exchanged the ADSs for the underlying class A preferred shares from converting dividends, distributions or the proceeds from any sale of such shares into U.S. dollars and remitting such U.S. dollars abroad. In such an event, the Brazilian custodian for our class A preferred shares will hold thereaisthat it cannot convert for the account of holders of the ADSs who have not been paid. Neither the custodian nor the depositary will be required to invest thereaisor be liable for any interest.

Holders of the ADSs may face difficulties in protecting their interests because we are subject to different corporate rules and regulations as a Brazilian company and our shareholders may have fewer and less well-defined rights.

Holders of the ADSs are not direct shareholders of our company and are unable to enforce the rights of shareholders under our by-laws and the Brazilian Corporation Law.

Our corporate affairs are governed by our by-laws and the Brazilian Corporation Law, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States, such as the State of Delaware or New York, or elsewhere outside Brazil. Even if a holder of ADSs surrenders its ADSs and becomes a direct shareholder, its rights as a holder of our class A preferred shares underlying the ADSs under the Brazilian Corporation Law to protect its interests relative to actions by our board of directors may be fewer and less well-defined than under the laws of those other jurisdictions.

Although insider trading and price manipulation are crimes under Brazilian law, the Brazilian securities markets are not as highly regulated and supervised as the U.S. securities markets or the markets in some other jurisdictions. In addition, rules and policies against self-dealing or for preserving shareholder interests may be less well-defined and enforced in Brazil than in the United States and certain other countries, which may put holders of our class A preferred shares and the ADSs at a potential disadvantage. Corporate disclosures also may be less complete or informative than for a public company in the United States or in certain other countries.

Holders of the ADSs may face difficulties in serving process on or enforcing judgments against us and other persons.

We are a corporation (sociedade(sociedade anônima)nima) organized under the laws of Brazil, and all of our directors and executive officers and our independent public accountants reside or are based in Brazil. Most of our assets and those of these other persons are located in Brazil. As a result, it may not be possible for holders of the ADSs to effect service of process upon us or these other persons within the United States or other jurisdictions outside Brazil or to enforce against us or these other persons judgments obtained in the United States or other jurisdictions outside Brazil. Because judgments of U.S. courts for civil liabilities based upon the U.S. federal securities laws may only be enforced in Brazil if certain conditions are met, holders may face greater difficulties in protecting their interests in the case of actions by us or our directors or executive officers than would shareholders of a U.S. corporation.

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Actual or anticipated sales of a substantial number of class A preferred shares could decrease the market prices of our class A preferred shares and the ADSs.

Sales of a substantial number of our class A preferred shares could negatively affect the market prices of our class A preferred shares and the ADSs. On or prior to December 31, 2005, Petroquisa is entitled to exercise an option to acquire a substantial number of new common shares from our company and, if necessary, preferred shares from the Odebrecht Group. If, in the future, substantial sales of shares are made by the Odebrecht Group,ODBPAR Investimentos S.A., or ODBPAR Investments, Petroquisa or other existing or future holders of class A preferred shares, the market price of our class A preferred shares and, by extension, the ADSs may decrease significantly. As a result, holders of the ADSs may not be able to sell the ADSs at or above the price they paid for them.

Holders of the ADSs may be unable to exercise preemptive rights with respect to our class A preferred shares underlying the ADSs.

Holders of the ADSs will be unable to exercise the preemptive rights relating to our class A preferred shares underlying ADSs unless a registration statement under the Securities Act is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the shares relating to these preemptive rights or to take any other action to make preemptive rights available to holders of the ADSs, and we may not file any such registration statement. If

we do not file a registration statement or if we and the depositary decide not to make preemptive rights available to holders of the ADSs, those holders may receive only the net proceeds from the sale of their preemptive rights by the depositary, or if they are not sold, their preemptive rights will be allowed to lapse.

Holders of the ADSs could be subject to Brazilian income tax on capital gains from sales of ADSs.

Historically, any capital gain realized on a sale or other disposition of ADSs between non-Brazilian holders outside Brazil was not subject to Brazilian income tax. However, a new Brazilian law provides that, commencing on February 1, 2004, “the acquiror, individual or legal entity resident or domiciled in Brazil, or the acquiror’s attorney-in-fact, when such acquirer is resident or domiciled abroad, shall be responsible for the retention and payment of the income tax applicable to capital gains . . . earned by the individual or legal entity resident or domiciled abroad who disposes of property located in Brazil.” The Brazilian tax authorities have recently issued a normative instruction confirming that they intend to assess income tax on capital gains earned by non-Brazilian residents whose assets are located in Brazil. In our view, ADSs representing class A preferred shares, which are issued by the depositary outside Brazil, will not be deemed to be “property located in Brazil” for purposes of this law. However, we cannot assure holders of our ADSs whether Brazilian tax authorities will attempt to tax any capital gains arising from the sale or other disposition of ADSs, even when the transaction is consummated outside Brazil between non-Brazilian residents.

The relative volatility and liquidity of the Brazilian securities markets may decrease the liquidity and market price of our class A preferred shares and the ADSs.

The Brazilian securities markets are substantially smaller, less liquid and more volatile than major securities markets in the United States. The São Paulo Stock Exchange (Bolsa de Valores de São Paulo), which is the principal Brazilian stock exchange, had a market capitalization of US$340.9 billion1.4 trillion (or R$904.9 billion)2.5 trillion) at December 31, 20042007 and an average daily trading volume of US$419.7 million2.5 billion for 2004.2007. In comparison, The New York Stock Exchange had a market capitalization of US$19.827.1 trillion at December 31, 20042007 and an average daily trading volume of US$46.1119.2 billion for 2004.2007. There is also significantly greater concentration in the Brazilian securities markets. The ten largest companies in terms of market capitalization represented approximately 47%56% of the aggregate market capitalization of the São Paulo Stock Exchange at December 31, 2004.2007. The ten most widely traded stocks in terms of trading volume accounted for approximately 48% of all shares traded on The São Paulo Stock Exchange in 2004.2007. These market characteristics may substantially limit the ability of holders of the ADSs to sell class A preferred shares underlying ADSs at a price and at a time when they wish to do so and, as a result, could negatively impact the market price of the ADSs themselves.

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Developments in other emerging markets may decrease the market price of our class A preferred shares and the ADSs.

The market price of our class A preferred shares and the ADSs may decrease due to declines in the international financial markets and world economic conditions. Although economic conditions are different in each country, investors’ reaction to developments in one country can affect the securities markets and the securities of issuers in other countries, including Brazil. Brazilian securities markets are, to varying degrees, influenced by economic and market conditions in other emerging market countries, especially those in Latin America. Any return to economic turmoil in Argentina or adverse economic developments in other emerging markets may adversely affect investor confidence in securities issued by Brazilian companies, causing their market price and liquidity to suffer. Any such developments could immediately affect our ability to raise capital when needed and the market price of our class A preferred shares and the ADSs.

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ITEM 4. INFORMATION ON OURTHE COMPANY

We are the leading petrochemical company in Latin America, based on average annual production capacity.capacity in 2007. We are also one of the threethird largest Brazilian-owned private sector industrial companies,company, based on net sales revenue.revenue in 2006 (the most recent year for which comparative information is currently available). We recorded net income of R$690.9547.6 million in 20042007 on net sales revenue of R$12,192.017,679.4 million, in each case under Brazilian GAAP. We produce a diversified portfolio of petrochemical products and have a strategic focus on polyethylene, polypropylene and PVC. We have integrated first and second generation petrochemical production facilities, with 1319 plants in Brazil.Brazil, including plants that we have acquired in the Ipiranga Transaction.

     Our registered office is at Rua Eteno, 1561, CEP 42810-000, Camaçari, Bahia, Brazil, and our telephone number at this address is 55-71-632-5102. Our principal executive office is at Avenida das Nações Unidas, 4777, São Paulo, SP, CEP 05477-000, Brazil, and our telephone number at this address is 55-11-3576-9999.

HISTORY AND DEVELOPMENT OF OUR COMPANYHistory and Development of Our Company

We were founded in 1972 as Petroquímica do Nordeste Copene Ltda. to plan, execute and coordinate the activities of the Northeastern Complex. The construction of the Northeastern Complex formed part of a development policy of the Brazilian government implemented in the early 1970’s to diversify the geographical distribution of industrial assets and to promote economic growth across different regions of Brazil. On June 18, 1974, we were incorporated as a corporation ((sociedade anônima)nima) under the laws of Brazil (with Brazilian company registry No. 29300006939) and were renamed Copene—Copene Petroquímica do Nordeste S.A.

Acquisition of Control by Norquisa

Prior to August 1995, Petroquisa, the petrochemical subsidiary of Petrobras, owned 36.2% of our total share capital, representing 48.2% of our voting share capital. Petrobras historically provided all of our requirements of naphtha, our principal raw material. At that time, Nordeste Química S.A.—Norquisa, or Norquisa, owned 17.3% of our total share capital, representing 47.6% of our voting share capital, and the remainder of our share capital was owned by various Brazilian private sector groups, pension funds, banks and our employees. Norquisa is a holding company that was formed in 1980 for the purpose

Privatization of holding shares of the petrochemical companies in the Northeastern Complex.Our Company

In August 1995, as part of the Brazilian government’s privatization program, Petroquisa sold 14.8% of our total share capital, representing 32.8% of our voting share capital, through an auction. Norquisa acquired 5.5% of our total share capital, representing 10.8% of our voting share capital, in this auction, for R$79.2 million, and the remaining shares were acquired by various Brazilian pension funds.

At the time of this auction, Norquisa was controlled by several second generation producers in the Northeastern Complex. TheseAs a result of this auction, Norquisa became our controlling shareholder.

Consolidation of Petrochemical Assets

     In 2001, the Odebrecht Group and a group of companies in turn, were controlled by several groups involved in the petrochemical business in Brazil. The ownersMariani family, or the Mariani Group, acquired control of Norquisa’s voting share capital immediately before and after this auction were as follows:

Following this auction, our corporate structure was as set forth in the following chart. The percentages in bold italics represent the percentage of the voting share capital owned directly and indirectly by the parent company of each entity, and the percentages not in bold italics represent the percentage of the total share capital owned directly and indirectly by the parentcontribution to our company of each entity. All of these companies are or were organized under Brazilian law.of:

Econômico S.A. Empreendimentos Auction and Related Transactions

Late in 1995, a Brazilian financial institution, Banco Econômico S.A., or Banco Econômico, collapsed, at which time the Central Bank intervened. Banco Econômico then held a 63.8% of the voting share capital of

Conepar—Companhia Nordeste de Participações, or Conepar, which, in turn, held

• 66.7% of the voting share capital of Polialden and Petroquímica S.A., or Polialden;
  
  
• 35.0% of the voting share capital of Politeno.

  The Brazilian government decided to liquidate the petrochemical assets of Banco Econômico as part of a broader initiative to restructure the Brazilian petrochemical sector. The Central Bank, as liquidator of Banco Econômico, formed Econômico S.A. Empreendimentos to hold the share capital of Conepar owned by Banco EconômicoPoliteno; and then conducted an auction of Econômico S.A. Empreendimentos on July 25, 2001.

  Immediately prior to this auction, the corporate structure of Econômico S.A. Empreendimentos and Conepar was as set forth in the following chart. The percentages in bold italics represent the percentage of the voting share capital owned directly and indirectly by the parent company of each entity, and the percentages not in bold italics represent the percentage of the total share capital owned directly and indirectly by the parent company of each entity. All of these companies are or were organized under Brazilian law.

  

  ---

  (1)	Intercapital Comércio e Participações Ltda. was formed in 1987. The Odebrecht Group acquired Intercapital in 1995. Intercapital acquired its shares of Conepar in 1999.

  (2)	BNDES Participações S.A.—BNDESPAR is a wholly owned subsidiary of the Brazilian National Bank for Economic and Social Development (Banco Nacional de Desenvolvimento Econômico e Social).

  (3)

  Polialden was formed in 1974 and produces high density polyethylene and ultra-high molecular weight polyethylene. Conepar acquired its shares of Polialden in 1974. The remaining voting share capital of Polialden was owned by Mitsubishi Chemical Corporation and Sojitz Holdings Corporation (formerly known as Nissho Iwai-Nichimen Holdings). Polialden is a public company in Brazil, and its shares trade on the São Paulo Stock Exchange. For more information regarding Polialden, see “—Our Principal Subsidiary and Jointly Controlled Companies—Polialden.”

  (4)

  Politeno was formed in 1974 and produces low density polyethylene, linear low density polyethylene and high density polyethylene. Conepar acquired its shares of Politeno in 1982. The remaining voting share capital of Polialden is owned by Suzano Petroquímica S.A., Sumitomo Chemical Company Limited and Itochu Corporation. Politeno is a public company in Brazil, and its shares trade on the São Paulo Stock Exchange. For more information regarding Politeno, see “—Our Principal Subsidiary and Jointly Controlled Companies—Politeno” and “—Overview of Our Company’s Operations—Jointly Controlled Companies—Politeno.”

  In order to increase its investment in the Brazilian petrochemical industry, the Odebrecht Group formed Nova Camaçari Participações
  
  

• Proppet S.A., or Nova Camaçari, for the purpose of participatingProppet, which was merged into our company in the auction. Nova

  Camaçari placed the winning bid in the auction and acquired Econômico S.A. Empreendimentos for R$785.0 million. On the same date, Nova Camaçari and the Odebrecht Group entered into the following transactions:

  2001.