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Water & Sewer | Drop by Drop

Source: Brasil Econômico.

Brazilian private-sector water and sewer companies plan to increase  their stake in the sector by entering into public-private partnerships.

An ugly duckling among infrastructure projects, sanitation is nevertheless being targeted by the private sector, which intends to elevate its share of the market from 10% currently to 40% in ten years.

Private sector sanitation companies made considerable progress in  2012 with the signing of 10 water and sewer contracts in 21 cities, with a total investment of R$1.23 billion — up 140% from 2011.

In the current scenario, the private sector holds 227 sanitation contracts in 250 cities, and has committed to R$ 16 billion in investments over the life of the contracts, according to statistics provided by ABCON [ … an industry association for private concessionaires in the sector.]

Expectations are that 10 more contracts of this kind will be signed in 2013. The year began with the January 17 awarding of a PPP to take care of sanitation in the Recife metro area and the city of Goiania.  The Grande Recife Consortium —  comprising Foz do Brasil (Odebrecht) and Líder Marc —  will be a  joint effort with the state-owned Pernambucana de Saneamento — Compesa.

The 35-year contract will receive investments of R$ 4.5 billion and benefit 3.7 million residents. Work is scheduled to begin in the third quarter of 2013.

Historically speaking, sanitation has received only a small portion of public investment. This is often explained with the observation that these projects are not very visible — after all, water and sewer pipes are buried underground.

Sanitation projects face the additional challenge of balancing large investments with small returns, which only pay off in the long term and require intense planning.

“The government has only invested  R$ 1.5 trillion on sanitation since 2003,” says ABCON president Roberto Muniz, whose association represents 100 concessionaires.

Water and sewer were closed to the private sector until on a few years ago due to the lack of a regulatory framework. The first such concession was executed in 1995, in the city of Limeira (SP), but the enabling legislation was not officially passed until 2007.

The decisive factor for companies interested in doing business in this sector was the government’s emphasis on the use of PPPs to guarantee infrastructure expansion. The trend is for  this model to be used in  the more expensive projects.

“The challenge is to get past ideological resistance to the participation of the private sector in providing public services,” Muniz says.

“When the private sector takes a stake in a telecommunications or highway construction project, for example, the relation between service provider and the end user matures over time, leading to the perception that the private sector is capable of supplying efficient, high-quality publiic services.”