It has been a year of unprecedented challenges amid the global pandemic but Brazil’s government is embracing the disruption as an opportunity to introduce ground-breaking legislation aimed at improving its ailing sanitation sector.

The COVID-19 crisis has highlighted the country’s pressing need to improve drinking water distribution and the collection and treatment of sewage and Brazil has responded with a new regulatory framework that aims to dramatically enhance nationwide services by 2033 with the support of private investment.

The sanitation bill is expected to spark a transformation in Brazil’s water supply and sanitation sector through privatizations.1

Currently, drinking water distribution covers 84 percent of the nation’s population, while sewage treatment services are available to only 54 percent of residents. This means that about 34 million Brazilians – equivalent to 90 percent of Canada’s population – lack access to clean drinking water while about 97 million – equivalent to 145 percent of the UK’s population – lack adequate sewage collection and treatment services.2

The government says its goal is to expand water distribution services to 99 percent of the country’s 209.5 million population and provide sewage collection and treatment services to 90 percent over the next 12 years.

New framework is a breakthrough for private investment

The new sanitation framework under Brazil’s Law 14,026/2020 provides a breakthrough in the sector's business environment, as it:

  • Establishes goals to universalize drinking water distribution and sewage treatment;
  • Creates national regulatory standards for sanitation services; 
  • Breaks the monopoly of state-owned companies providing sanitation services and opens up competition to the private sector.3

According to a recent study by KPMG in Brazil in conjunction with the Association of Brazilian Private Sanitation Concessionaires (ABCON), the total investment required to meet Brazil’s goal for the universalization of sanitation services by 2033 is estimated at US$150 billion.4 That means more than US$10 billion of annual investment – more than four times the average annual investment of US$2.4 billion into the sector over the last five years.5

New national standards for sanitation services will help to significantly reduce regulatory risks for potential private investors: Brazil’s sanitation sector currently has more than 60 municipal or state regulatory agencies, each with its own standards, thereby increasing the complexity and cost of providing services through private operators.

The new sanitation framework enables Brazil’s National Water and Basic Sanitation Agency (ANA) to institute new national reference standards that will have to be followed by existing regulatory agencies. These include: quality and efficiency standards governing services, maintenance and operation of systems; tariff regulation; standardization of contractual instruments, universalization goals, regulatory accounting, indemnity calculation, and expiration rules.6

Private operators are showing interest

Responsibility for delivering sanitation services in Brazil belongs to each municipality. Since the 1970s, when state-owned sanitation companies were created in each of the 26 Brazilian states, the great majority of municipalities signed concession contracts with the state-owned sanitation company of their respective state. These were being renewed without competition, creating a monopoly for the 26 state-owned companies.

The new sanitation law requires all municipalities to allow public bids by any public or private sanitation operators for new or renewing sanitation-services contracts, thus ending the monopoly and opening the market to competition in the private sector.

Following publication of the new framework in July 2020, Brazil saw three successful bidding processes for sanitation concessions during the second half of 2020 – all won by private operators. The bidding for sanitation services in the metropolitan region of Maceió, in the state of Alagoas, with investment of US$520 million required to serve 1.5 million inhabitants, had seven competitors and the winner paid a goodwill of US$400 million,7  130 times the minimum amount established in the bidding notice.

The competition for the concession to universalize sewage-treatment services in the municipalities of Cariacica and Viana, in the state of Espírito Santo, with an investment of US$116 million to serve 423,000 people, had seven competitors and the winner offered a 38-percent discount on the base tariff established in the bidding notice.

Finally, the concession for the universalization of sewage-treatment services in the 68 municipalities of the state of Mato Grosso do Sul, with an investment of US$760 million to serve 2.6 million people, had four competitors and the winner offered one 38-percent discount on the base rate established in the bidding notice.8

Major contracts are up for bidding in 2021

Looking forward, six more bidding processes for sanitation concessions are planned in 2021. The largest involves the state-owned sanitation company of the state of Rio de Janeiro (CEDAE) and covers sanitation services in 30 municipalities, grouped into four concessions, with total investments of US$6 billion to serve 13 million people.9

The bidding notice was published on December 28, 2020 and the auction is scheduled for April 30, 2021. The other five concession bids scheduled for 2021 in the states of Acre, Amapá, Rio Grande do Sul and Ceará will require investments that add up to more than US$3 billion to service nine million people.10

The new sanitation law establishes measures to improve regulation, contracts and competition in the sector, seeking to make the investment environment more secure and sustainable in order to attract the US$10 billion annual investments needed to modernize Brazil’s underdeveloped sanitation infrastructure. Today, private sanitation operators are present in only 5 percent of the 5,570 Brazilian municipalities but they are already responsible for more than 20 percent of investment into the sector over the last 10 years.
The universalization of sanitation services in Brazil by 2033 will only be possible through much larger participation by international private investors, and the Brazilian government is taking the necessary steps to effectively implement its new sanitation framework nationwide.11

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