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Elite Squad 2,” the highly anticipated sequel to Jose Padilha’s runaway commercial hit, has yet to open in Brazil, but already the film is stirring up controversy at home. That’s because Padilha’s production company Zazen announced it will distribute the pic, rather than relying on Universal, which coproduced and released the original, winner of the Golden Bear at 2008’s Berlin Film Festival.

This time around, Zazen is teaming up with vet distrib exec Marco Aurelio Marcondes, who will oversee the release.

With the decision to go the indie route, Zazen had to forego the widely used Artigo Terceiro incentive system, which allows majors to recoup local production coin they would otherwise pay as tax to the government.

Pic producers were able to give up Artigo Terceiro’s support because they managed to raise roughly 55% of their $9.2 million budget from private investors, with the rest coming from other local incentives.

This is a rare business arrangement in Brazil, where the bulk of features are fully funded through incentives.

“Producers are taking a risk, but it is a controlled risk. ‘Elite Squad’ is the most important film trademark in Brazil. With such a product and Marcondes, they do not need a big distributor,” explains Paulo Sergio Almeida, publisher of the Filme B trade newsletter. “If this release is successful, we might see other producers deciding to distribute their films.”

To assess the sequel’s potential, Zazen hired research firm Ibope to estimate how many tickets “Elite Squad” would sell under normal conditions.

Three months before the pic’s theatrical release in October 2007, local streets were flooded with high-quality pirated DVD copies of the feature. According to the study, without piracy, instead of selling 2.7 million tickets, the pic would have sold 6.6 million tickets.

To reduce the risk of piracy, the post-production on “Elite Squad 2” is being done abroad. (Shooting took place between January and April in Rio’s metro area.)

The sequel used the same creative team as the original. Wagner Moura reprised his role as Captain Nascimento, who heads Rio de Janeiro’s Police Special Operations Battalion. Scribe Braulio Mantovani again penned the screenplay, while Lula Carvalho returned as main cinematographer. Marcos Prado, Padilha’s partner in Zazen, produced.

The plot once again centers on Nascimento’s experiences in Rio’s elite police squad.

In the original, the unit waged a war on drug dealers entrenched in Rio’s favelas; now, they take on militia groups comprised of corrupt police officers who control a number of favelas.

This time, Nascimento must face another challenge as well — that of educating his troubled teen son.