Aegea to take control of Rio Grande do Sul water utility Corsan

Brazil's biggest private sector sanitation firm, Aegea Saneamento e Participações, was the sole bidder in an auction for Rio Grande do Sul state water utility Corsan and will now take control of the firm.

Aegea offered 4.15bn reais (US$976mn) to take over Corsan on Tuesday, just above the reserve price of 4.10bn reais set by the government.

Earlier this year the Rio Grande do Sul government tried to privatize Corsan via an IPO, with the state planning to retain a minority stake in the firm. However, it had to suspend the initiative after the state audit court demanded corrections to the economic and financial model.

State officials see the privatization as a way to boost Corsan’s investment capacity and improve and expand services. Corsan operates across 317 municipalities in Rio Grande do Sul, serving 6mn people.

State governments have been increasingly turning to privatizations and concessions for their water utilities after congress approved a new framework in mid-2020 that obliged all states and municipalities to provide full water and sewage coverage for all residents by 2033.

UNCERTAINTY

The lack of competition in the auction may hint at growing fears among investors about possible regulatory changes in the sector. Iguá Saneamento and Águas do Brasil were also interested in taking part in the Corsan auction but decided not to, a source involved in the process told BNamericas, asking not to be named.

Recently, some of the members of president-elect Luiz Inácio Lula da Silva's transition team have said that are looking to review existing regulations for the sector, including the role of regulator ANA.

"Any sign of regulatory instability drives investors away from the sector. The rules for the sanitation sector in Brazil are quite complex, involving national and local actors. Investors who started to position themselves in the sector in Brazil took a while to understand all the rules and when it seems that they're understanding them well, there are talks to change them," Christianne Dias Ferreira, former head of ANA and a partner at infrastructure-focused advisory firm Vallya, told BNamericas.

"This all creates an environment of uncertainty, and we'll have to wait to see what the government-elect will actually want to discuss regarding sanitation regulations," she added.