Brazil’s Alagoas state raised 1.64bn reais (US$290mn) in fees from local and international players in auctions for 35-year water and sanitation concessions in 61 municipalities
“The sanitation sector has been consolidating itself as one of the main investment vectors in the Brazilian infrastructure segment and, in addition, it is a sector that has attracted a lot of interest from foreign participants,” Paulo Dantas, an infrastructure and project finance specialist at the Castro Barros Advogados law firm, told BNamericas.
The concessions were offered in two blocks and attracted intense competition. Each block was disputed by three groups.
Block B was awarded to Consortium Alagoas, led by local engineering firm Allonda Ambiental, which offered 1.21bn reais, well above the minimum fee of 3.22mn reais. The consortium defeated bids from Aegea Saneamento (33.6mn reais) and Consortium Mundau, led by Cymi – a local subsidiary of Spanish group ACS (1bn reais).
The block comprises 34 municipalities with 561,000 residents. Investment during the concession contract is estimated at 1.9bn reais.
Block C was awarded to ACS consortium Mundau, which agreed to pay 430mn reais, more than 10 times the minimum of 32.4mn reais. It defeated offers made by GS Inima (235mn reais) and Aegea (66mn reais).
The block comprises 27 municipalities with 410,000 residents. Projected investment is 988mn reais.
The concession contracts were structured by development bank BNDES.
“We mobilized 4.5bn reais in fees and investments across Alagoas, a region that demands a lot of investment. We want to show Brazil that a well-structured project brings a return to society and it’s important that this culture of structuring projects by BNDES continues,” said the bank’s CEO Gustavo Montezano after the auction.
In September last year, water, wastewater and solid waste management company BRK Ambiental Participações, controlled by Brookfield Business Partners, won the water and sanitation services concession for Alagoas capital Maceió, offering a premium of 2bn reais. That concession comprises the other 13 municipalities in the state.
“In the last 14 months, we have already held five water and sanitation auctions, mobilizing more than 35bn reais in investment in the sector for the coming years and more concessions will come,” added Montezano.
Concessions in the water and sanitation segment have been gaining traction after congress approved last year key changes in regulations, paving the way for more investments by the private sector in an area dominated by state-owned companies. Since then, a string of water and sanitation concessions and privatization plans have been announced.
Earlier this month, the regulatory framework saw its legal security strengthened due to a supreme court decision.
The court ruled in favor of the government keeping the regulation intact after opposition parties had challenged the new rules, alleging that the framework could lead to the formation of private sector monopolies in some areas.
In its decision, the court said the new rules had been approved by congress to improve the efficiency of the country’s water and sewage services with the aim of solving chronic problems with the previous model that favored state-owned utilities.
“The supreme court’s decision brings greater legal certainty to the sector, so the trend will be to see even more competition in the upcoming concession auctions,” added Dantas.
The next concession auction in the sanitation segment will be held December 29, when Rio de Janeiro state will offer its block 3, which is expected to generate 4.7bn reais in investments during the 35-year contract.
The auction is poised to attract fierce competition due to the extensive coverage area.
“The block 3 concession is more robust, and this represents an attractive option for companies. As it offers large scale, the auction is likely to attract many participants,” Percy Soares Neto, executive director of water and sewage services concessionaire association Abcon, told BNamericas.
The concession covers 20 municipalities with 2.7mn residents, plus Rio de Janeiro city’s western districts.