Spotlight: The investments needed in Brazil's sanitation sector

Bnamericas Published: Monday, August 22, 2022
Spotlight: The investments needed in Brazil's sanitation sector

The Brazilian sanitation sector will need to invest around 308bn reais (US$59.7bn) during 2023-26 to meet regulatory obligations, according to a study.

"Brazil has more than 5,000 municipalities but only about 320 of these have more than 100,000 inhabitants. 90% of the municipalities are highly dependent on federal government support," Hugo Nery, the CEO of Marquise Ambiental, a large player in the solid waste industry, told BNamericas. 

This means that sanitation concession contracts with most municipalities represent a major default risk for private sector companies. 

A new regulatory framework that was approved by congress in mid-2020 stipulates that municipalities must provide sanitation coverage for all their inhabitants by 2033.

The investments needed to reach universal coverage amount to 893bn reais, according to a study from the Brazilian association of water and sewage concessionaires, Abcon.

Nearly half of the country’s population, or 100mn people, do not have adequate sanitation services.

The framework supports the participation of private companies in a sector where most of the investments are made by state-run firms.

Since the new rules came into effect, several private firms have won water and sanitation concession contracts in large cities.

The number of tenders has now been reduced since there is little appetite among private firms for sanitation and solid waste contracts with smaller cities.

Forming a consortia among several small municipalities to offer a larger contract, with the support of development bank BNDES and state-run lender Caixa Econômica Federal, is a way to increase the appeal for the private sector, according to Abcon. 

The main challenge of consortia formation is the fact that many municipalities have mayors who are from different political parties. 

"In Brazil, every two years we’re in the midst of an electoral process and this often makes it difficult for companies to decide about investments, as they have to wait to understand how the next administration will act," said Nery. 

The terms for president, state governors and mayors last four years, with the possibility of one reelection. The elections for president and governors are held on the same date, while mayoral elections are held at two-year intervals. 

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