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Sambodian Water Crisis | Private Sector to the Rescue?

Graphic: Economist.com

Source: Estadão

Topic: Water shortages and the public and private sectors

The average resident of the city of São Paulo still consumes roughly 200 litres of water a day, well above the 150 litres in much of Europe. —Economist, “Reservoir hogs: Government responded late to a drought in Brazil’s industrial heartland”

Frequent bathing is a cultural trait. Do you think that figures in?

The Estado de S. Paulo explores the opportunities for private sector water and sanitation companies during the current crisis, providing a fair overview of the how the market works and its dominant player. It is interesting to read alongside coverage of how large the market is for black-market well-drillers and other capture, storage and reuse mechanisms.

I translate an excerpt.

Fear of a water shortage could give a boost to private sanitation companies. While concessionaires like Sabesp study ways to guarantee the water supply, private enterprises take advantage of the public visibility of the topic to sell water reuse systems and other options for supplying water to businesses and townships.

The Unichem Dilemma

http://cdn.static-economist.com/sites/default/files/imagecache/original-size/images/print-edition/20141220_AMC569.pngWater is an important input for heavy industry, and without it, many companies could be forced to interrupt production. “Water represents between 70% and 90% of the components used to produce cosmetics and cleaning supplies,” explains Cássio Barros, CEO of Universal Chemical (Unichem), one of the third-party suppliers that feed such clients as Unilever, L’Oréal and Reckitt Benckiser.

Unichem took advantage of the construction of its fourth factory, in an industrial park in Sarapuí (inland São Paulo), to install the integrated waste treatment center and water reuse system that were lacking.

The system will be ready in March and has received R$10 million in investments, to be paid by the sanitation company Nova Opersan as part of a long-term contract to manage the process.

Reuse will permit Unichem to save 10 million liters of water per year, or about 15% of its total production. This water will be used in the clearing and the rest rooms at the site. “We have not experienced water shortages, but we are aware of the risk. Neighboring cities are experiencing water shortages,” said Barros.

The Market

Like Unichem, other companies are in the market for water reuse services and alternative water sources to reduce their dependence on the big concession-holder that supply them. The new contracts may increase the participation of private groups in the sanitation market, which today stands at about 10%, according to market estimates.

In 2014, the number of waste treatment units managed by Nova Opersan for industrial clients jumped from 28 to 62. The company’s CEO, Sergio Werneck Filho, says the expansion is a response to the water crisis, which has opened th e eyes of managers, and an increase in the services offered by the company.  Since its creation by Pátria Investimentos fund P2 in 2012, Nova Opersan has underone six (6) mergers and acquisitions and now offers services that range from project design to the removal of waste.

“It is difficult to know how many of these projects make it off the drawing board because of the current crisis. But it is a fact that companies are gradually becoming aware that there exist solutions within their reach. Praying for rain is not all that they can do,” he says.

Public-Private Partnerships

The Águas do Brasil group, the largest of its kind, has reinforced its sales team and expects that the anxiety over water scarcity in São Paulo opens up new opportunities for contracts.  “We are ready to seek new public-private partnerships, industrial projects and concession contracts,” said group director Carlos Henrique da Cruz Lima. Projected 2015 revenues of Águas do Brasil are R$ 1.5 billion, compared with R$ 1.3 billion in 2014.

But this scenario is not favorable to everyone in the sector. Sanitation consultants fear that the crisis will affect the operating budget of clients, who will reduce their investments.”In critical situations like this, concession-holders prioritize prepackaged solutions rather than hiring consultants,” said Luiz Pladevall, president of Apecs, a trade association with 42 associates.