The auction for concessions for water and sanitation services in Brazil’s Rio de Janeiro state resulted in fees much higher than originally projected and that could encourage other states to offer concessions or privatize their own water companies.
The Rio concessions are expected to generate investments of around 30bn reais (US$5.5bn) in the coming years, with sanitation services being provided to more than 10mn people.
During Friday’s auction on the Sao Paulo stock exchange, a total of four blocks were offered and although one of them garnered no bids, the state government raised a total of 22bn reais in fees from the other three, more than double the 10.6bn reais originally estimated.
“The result of this auction, in terms of fees paid, shows that the private sector is betting on the sanitation sector. With this result, other states will accelerate their concession processes and those state governments that have listed sanitation companies will now probably be seriously considering privatization of their respective companies,” Joao Cortez, a partner at Vallya, a think tank and financial adviser specialized in infrastructure, told BNamericas.
Aegea Saneamento e ParticipacOes, controlled by Equipav, Singapore’s sovereign fund (GIC) and holding company ItaCisa, won two of the four blocks and Igua Saneamento, in a consortium formed with Sao Paulo state water utility Sabesp, won one.
This will be the first time that a state-run company has taken on services in another state.
The auction was prompted after congress approved a law last year to change the regulations and improve legal certainty for private sector water and sanitation firms, enabling local governments to offer concessions to multiple players.
“With this auction, Aegea consolidates itself as the largest private sector sanitation player in Brazil, taking on two important blocks. With regard to Sabesp, which is part of the other winning consortium, that also shows that state-owned companies can seek new business,” Paulo Dantas, a lawyer specialized in infrastructure and project finance at law firm Castro Barros Advogados, told BNamericas.
A CLOSER LOOK AT THE AUCTION RESULTS
Currently operated by Rio de Janeiro state firm Cedae the services offered will now be assumed by different players.
Aegea Saneamento won the auction for blocks 1 and 4, offering fees of 8.2bn reais and 7.2bn reais, respectively.
Block 1 comprises services in neighborhoods in the south of the city of Rio de Janeiro and 18 other municipalities. This block comprises a total of 2.8mn people and involves estimated capex of 8.3bn reais.
Block 4, covering the center and north of the city of Rio de Janeiro, as well as the cities of Belford Roxo, Duque de Caxias, Japeri, Mesquita, Ni!Oohs, Nova Iguagu, Queimados and Sao JoAo de Meriti, involves estimated capex of 16bn reais to serve 7mn people.
Meanwhile, the consortium led by lgua Saneamento will assume control of block 2, comprising Barra da Tijuca and Jacarepagua neighborhoods in Rio de Janeiro, as well as the municipalities of Miguel Pereira and Paty do Alferes, covering a region with 1.2mn people and involving expected investments of 2.8bn reais.
No bids were made for block 3, formed by neighborhoods in western Rio de Janeiro city and the municipalities of Piraf, Pinheiral, Rio Claro, Itaguai, Paracambi and Seropedica. This block is populated by 1.9mn people and requires estimated investments of 2.6bn reais.
According to Nicola Miccione, chief of staff for the Rio de Janeiro state government, block 3 will be reoffered in a future auction and other municipalities may be included to make the package more attractive.
With these concession contracts settled, other concessions in the segment are also expected to take place.
BNamericas takes a look at the main concessions and PPPs planned by state governments in the sector in cooperation with state-run development bank BNDES.
The project includes a concession for water distribution, sewage collection and treatment and commercial management services for users in the northeastern state, with the 89 municipalities split into two blocks, covering a total of around 1.78mn people.
The 35-year concession for water and sewerage services in urban areas of the 16 municipalities of Amapa involves estimated investments of 312bn reais to serve more than 600,000 people.
BNDES is working on drawing up a PPP model for sewerage services for 2mn people in the northeastern state. Required investments are estimated at 6.41bn reais over 30 years.
Rio Grande do Sul (Porto Alegre)
The concession for water supply and sewerage services in Porto Alegre, the capital of Rio Grande do Sul state in southern Brazil, involves estimated investments of 217bn reais to serve 590,000 people for 35 years.
Rio Grande do Sul (41 municipalities)
Rio Grande do Sul is also evaluating a concession for sanitation services in another 41 municipalities. The state government has still not decided on the best format, but the concession or PPP will cover 1.89mn people.