"Private involvement in the sanitation sector is still young"

Friday, April 8, 2011

As Brazil surges forward with large transport and infrastructure projects, the sanitation sector still has a lot of room for improvement. Wastewater collection services reach 43.2% of the population, and only a third of this wastewater receives adequate treatment.

With just 10% of sanitation operators controlled by the private sector, experts say increasing private involvement could go a long way towards closing Brazil's sanitation gap. Public-private partnerships (PPPs) are an important factor and look to be on the increase, according to Édison Carlos, president of Instituto Trata Brasil (ITB), an NGO focused on sanitation.

BNamericas spoke with Carlos about private participation in sanitation, regulatory issues, project delays and concerns about the level of public investment in the sector.

BNamericas: How has private participation in Brazil's sanitation sector evolved, and how would you rate the quality of service?

Carlos: Regarding sanitation services, 70% are provided by state operators, 20% by municipal operators and 10% by private operators.

Most services are offered by public enterprises, some of which lack efficiency, as the necessary managerial improvements and updates haven't been carried out for some time now.

Of the 26 state sanitation utilities, only about 10 have the conditions to obtain financial resources within the industry. They still have a hard time breaking even, financially speaking.

BNamericas: How would you improve the situation?

Carlos: Private as well as public institutions must have clear service improvement targets, meet deadlines and, above all, make a strong effort to reduce water losses in their sanitation networks.

Only with serious planning and management improvements will these firms become financially healthy and advance their businesses.

For instance, the average loss rate for treated water in Brazil is about 40%, meaning that for every 100l of water that is collected and treated, 40l are lost through leakages and theft. This results in huge financial losses for companies, thus reducing investments aimed at improving and expanding sewerage systems.

BNamericas: What's your outlook for the privatization of sanitation services?

Private sector involvement, regardless of what industry we're talking about, brings a lot of positives. It improves productivity, reduces costs and helps achieve overall goals.

Wastewater collection and treatment projects are expensive long-term operations. So private operators, which are always linked to the government via a grant or PPP, tirelessly seek to improve procedures and reduce losses as a way to achieve a faster return on investment.

In addition, private operators are more likely to be audited and controlled by regulatory agencies as well as the local population.

For private concessionaires, operational transparency is necessary in addition to achieving contractual results to avoid possible penalties. This scenario tends to accelerate the achievement of service solutions in the municipalities they serve.

BNamericas: Some private firms are concerned about doing business in the sector. Would you say investment in the sanitation sector is a safe bet?

Carlos: There are currently several cases in the southeast of the country where private sector involvement has come up, mainly through partnerships with state and local operators. They are helping to dispel the negative misconceptions that arise when a public service is transferred to the private sector.

Generally, projects carried out in the sanitation sector via PPPs have proven to be viable and well planned, mainly as they are well monitored by the local government, the public utility (when applicable) as well as by the private entity involved when it comes to costs and project deadlines.

Private involvement in the sanitation sector is still young and I expect it to grow.

BNamericas: Regulatory authorities are fairly new to Brazil's sanitation sector. How is this concept coming along?

Carlos: The presence of regulatory agencies is required according to sanitation law. When developing basic municipal sanitation plans - another legal requirement – the plan must include the involvement of a state regulatory agency or a consortium formed of several municipalities.

A regulatory agency brings more transparency to the services being rendered and makes sure objectives are fulfilled. It also provides a place for citizens and users to address questions or doubts, request for improvements, allowing them to become more involved in the development of services in their city.

Although this brings a positive to the sector, of course, problems as to how regulations are mapped out arise from time to time. Regulatory firms are quite common in other infrastructure sectors but they are still new to the sanitation sector. We believe that as the number of agencies in the country increases, the problems will decrease.

How can Brazil speed up sanitation projects?

Carlos: At ITB we believe one of the industry's main needs is to be better technically prepared when carrying out projects.

This includes reducing bureaucracy when it comes to accessing financial resources as well as performing the overall project. For instance, we must accelerate the process of determining land ownership, reduce problems regarding jurisdiction issues and quickly deal with legal procedures such as appeals.

The industry must start by rejecting engineering projects that are outdated, inaccurate and poorly structured. Operators should also be better prepared financially and the contractor selection process should be improved.

Finally, we must decrease the difficulty of obtaining environmental permits. Licensing must be firm enough to protect the environment, but authorities should prioritize sanitation projects in areas that have a severe lack of wastewater collection and treatment services.

BNamericas: The government has earmarked 40bn reais for water and sanitation up to 2014. Do you think this investment is sufficient?

Carlos: In the last few years, public investments in the sector have been about 5bn reais annually, or nearly 7bn reais if we include private investment. These numbers are still very small considering the challenge we are faced with, which is reaching universal sanitation service.

Achieving this goal in the short term will be very difficult due to a lack of good management and positive results from many players in the market.

Moreover, the time from project presentation to the start of civil construction is currently more than 24 months, and that's only when the process runs effectively.

At ITB we don't think PAC is enough. As of early 2010, less than 30% of PAC resources had been actually applied to civil construction work. According to our assessment, Brazil should be investing 13bn-15bn reais in the sector each year so it can reach universal service in 15-20 years.

This doesn't include the investment needed to replace older networks that cause physical and financial losses, hindering the progress of Brazil's sanitation provision.

About the company

Instituto Trata Brasil is a civil society organization of public interest (OSCIP). It coordinates and mobilizes actions throughout Brazil aimed at achieving universal wastewater collection and treatment coverage nationwide.