The future of Rio de Janeiro state water utility Cedae is surrounded by uncertainty as its controller faces a challenging fiscal scenario and a plan to privatize the company is likely to face legal opposition.

Years of excessive spending and a drastic drop in tax collection (mainly due to lower oil revenues) have forced the Rio de Janeiro state government to target Cedae for privatization in order to raise cash.

A privatization would help the Rio government pay a loan of 3.5bn reais (US$1.1bn) that it obtained from the federal government to cover late payments to public servants.

"The government is planning to privatize Cedae but there are no people from the sanitation area involved in the discussion. The only perspective discussed, so far, is the need for the state to raise cash, not the needs of the company," Roberval Tavares de Souza, president of the Brazilian sanitary and environmental engineering association (ABES), told BNamericas.

"Cedae, like any other sanitation company, has as its main asset the service contracts. Those contracts are a legal instrument between the company and the cities. From the moment it is privatized, the contracts become null, attracting no interest from investors in Cedae," Souza added.  

Local prosecutors have said that the privatization of Cedae would be unconstitutional since the state government is planning to use the proceeds to cover late payments to state employees.

Rio's government recently hired local think tank Fundação Getúlio Vargas to put a value on Cedae. Separately, national development bank BNDES hired a consultancy to evaluate the possibility of a privatization process.

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