Brazil's Sanepar looking to expand its reach

Thursday, January 18, 2018

The water utility in Brazil's Paraná state, Sanepar, is planning to expand its activities into new business areas and is also weighing up providing services in other state of the country.

Meanwhile, the company, which is planning huge investments for the next few years, is also concentrated on controlling its fixed costs and, as part of this focus, it is trying to reduce its existing working force.

Sanepar president Mounir Chaowiche talked with BNamericas about the company's future projects.

BNamericas: What are the main plans that Sanepar wants to implement over the next few years?

Chaowiche: We currently have universal access to water, with 100% of the population of Paraná state being served with potable water and we're still advancing with improving water supplies to rural communities. This is the result of heavy investments made by us.

Now we're seeking universalization in the collection and treatment of sewage.

In Brazil, 42% of the population has access to sewage collection and treatment, while we've reached a level of 70.2% in the Sanepar system. We're seeking to universalize this access within 15 years, reaching 100% coverage in Parana, serving all the municipalities in our state.

BNamericas: Along with water and sewage, does Sanepar intend to enter other business areas?

Chaowiche: We've seen another opportunity, to operate in the solid waste area.

We already have a small solid waste management operation, operating three landfills, but we want to expand that.

Brazil has a very serious problem in garbage management, so we're looking for a model in Portugal and we're going to launch a consortium of 30 municipalities and we'll build a waste treatment plant. We're going to provide further details about this soon.

We currently have three landfills and this experience has helped us understand what is most efficient in this area.

Our entrance into the solid waste sector will help us to diversify our revenues. There's a need for all companies in the industry to seek to do this and other sanitation companies have been looking at this too. I expect that the waste area will eventually be responsible for 20% to 25% of our revenues within up to 10 years.

Another area that I believe Sanepar can explore in the next few years is the possibility of operating in other states [of Brazil.] We've had initial contacts about this possibility, but this has to be assessed in more detail.

BNamericas: Will you form any partnerships to operate in the solid waste sector?

Chaowiche: We will have a partner in solid waste [the executive declined to name the partner] and we're open to the participation of private sector partners, where possible.

We want the support of the private sector, either through PPPs [public-private partnerships] or through SPEs [specific purpose companies].

In Sanepar we have a model of private partnerships in progress that we call asset leasing. There's one underway in the coastal region of the state, which is a 250mn-real [US$78mn] project to improve sanitation and this model could be used for other projects as well.

BNamericas: State-owned companies in Brazil are often criticized for the political influence that affects them. What does Sanepar do to avoid political influence in its administration?

Chaowiche: Saneapar's evolution also lies in the area of governance. Two years ago, we had 2,000 investors [investors with company shares] and now we have 37,000 investors. Behind this is the implementation of a serious governance regime in the company.

This covers the management and guarantees rate readjustments and transparent management. In Paraná we've had strong backing from the current governor. I'm convinced that any future governor of the state will continue this, with no changes to plans for Sanepar, because what matters to any future governor is for Sanepar to continue pursuing universalization [of services].

I'm convinced that any governor who takes power in the state won't have facilities to interfere in the company for the sake of populism.

BNamericas: Sanepar recently announced plans to invest 5.68tn reais in its operations by 2022. Will there be the need to tap the capital markets or banks to finance this?

Chaowiche: We've already done some preparatory work. Sanaper already has financing contracts that ensure its investment plans and we don't need to seek new resources. We've invested heavily in maintenance and this guarantees the support of our models.

BNamericas: On what other fronts is Sanepar working to improve its efficiency and financial results?

Chaowiche: We're working on improving management and reducing our staff. Last year we cut 280 employees, who joined the voluntary retirement and retirement programs.

These programs are permanent and will continue this year and for the next few years. Currently, we have 7,200 employees and I believe we can reduce this even more, reaching 6,800 workers, which is an adequate level, since we've implemented various technological improvements that guarantee the quality of our services.

BNamericas: Speaking more generally about the sanitation sector in Brazil, the governments of various states have encountered challenges to advance with plans to privatize sanitation companies. What are the reasons for this?

Chaowiche: In order to move forward with the privatization of sanitation companies in Brazil, we have to adjust the regulatory framework for sanitation. The sanitation system is still somewhat insecure for private investment, especially in the area of rates.

The thinking in the past about freezing rates is misleading, as what population saves in sanitation rates, it ends up paying with greater healthcare costs.

When the new regulatory framework guarantees adequate rates, I think that private investors will have more appetite to invest.

Sanepar, Sabesp and Copasa have models that don't need privatization, but smaller companies in other states can advance with privatizations if they have a defined regulatory framework.

BNamericas: What is your opinion of the sanitation sector in Brazil?

Chaowiche: I understand that we're currently at a very favorable moment in time for the sanitation area in Brazil.

Before, governments avoided investments in sanitation because it was claimed that they didn't produce votes for them. Now, the federal government, along with state and city authorities, have woken up to the importance of sanitation.

Brazil is one of the world's 10 largest nations and it is still below 100th place in terms of sanitation services. I believe that 30% of what is spent on health in Brazil right now is still is the result of the lack of an adequate sanitation network. There's still a lot to improve.

About the company

Sanepar was founded in 1960 and is controlled by the government of Paraná state. It provides treated water supply, sewage collection and treatment and solid waste management services.

The company serves 345 cities in Paraná state and has an 84,600km network for distribution of potable water, and collection of sewage and discharge of treated sewage.