Plan for US$8bn Rio de Janeiro sanitation concession faces delay risks

The federal government’s plan for a sanitation service concession in Rio de Janeiro state could face major delays if it fails to publish the tender notice before year-end. 

Considered the largest infrastructure project in Brazil, with the combined investments and fees expected to be around 44.1bn reais (US$8.12bn), the concession plan is complex since it requires approval from mayors of 47 cities in the state, who are using the services of state-owned water utility Cedae. 

In January, new mayors - elected in this month’s municipal elections - will take office. 

If the tender notice is not published by mid-December, the new mayors would be able to request a reevaluation of the concession plan by their respective administrations, said Fábio Abrahão, director of infrastructure, concessions and public-private partnerships at federal development bank BNDES, during a Monday webinar that was organized by Rio de Janeiro’s federation of industries (Firjan). 

BNDES worked with the state government to structure the concession model. 

If the tender notice is published next year, “what we will see is the opening of a whole process of discussion from mayors who do not know the project,” said Abrahão, who added that such a situation would threaten the project’s progress.

Under discussion since 2017, the planning of the concession accelerated this year after congress approved a new regulatory framework for the sanitation sector to attract private sector investment. 

The plan is to offer a concession contract for water distribution and sewage treatment, which would demand investments of 33.5bn reais, while the minimum concession fees would be 10.6bn reais, making it the largest project in Brazil’s infrastructure pipeline in financial terms. 

"It is a superlative project and we want the universalization of basic sanitation in 12 years. In addition to the depollution of Guanabara bay," said Abrahão. 

A delay to the concession plan would also be a headwind for banks and their project finance areas. 

Marcelo Girão, head of project finance at Itaú BBA, and Edson Ogawa, project finance head at Banco Santander Brasil, told BNamericas that their respective banks have already received mandates from clients who are interested in participating in the tender.