Contraste
Sanitation Coverage
Historically, the Brazilian basic sanitation market has been underdeveloped compared to other emerging markets. In 2021, the percentage of the Brazilian population with water and sewage coverage was 84% and 56%, respectively, according to the SNIS.
In this context, in 2007, the Brazilian federal government approved the water and sanitation law that outlines federal policies to improve the sector’s performance. The objective of the law is to universalize access to water and sanitation in Brazil. In 2013, the Brazilian federal government took a step forward to improve water and sanitation conditions in the country, approving the Plano Nacional de Saneamento Básico, or Plansab, which aims to provide universal access to drinking water by 2023, universal access to sanitation in areas urban areas by 2033, as well as achieving 93% coverage in terms of sewage treatment by 2033.
Although there have been government efforts to develop and universalize water and sanitation in Brazil since 2007, development has been limited, and advances in water and sewage coverage rates have also been limited. To overcome the national deficit in sanitation, Plansab estimated that by 2033 investments of R$142 billion in water and R$215 billion in sewage are needed, an average of R$27.6 billion per year, at 2019 prices, the value much higher than that achieved in recent years.
In this sense, the sanitation market in Brazil presents a series of opportunities for players operating in the sector. And the recent regulatory changes introduced as of Law No. 14,026/20, with an update to the Sanitation Legal Framework to (i) grant the National Water and Basic Sanitation Agency (ANA) the authority to edit reference standards on the sanitation service, ( ii) oblige the definition of universalization targets in contracts for the provision of public basic sanitation services: 99% (ninety-nine percent) service for water supply and 90% (ninety percent) for sewage collection and treatment until 2033, as well as quantitative targets for non-intermittent supply, reducing losses and improving treatment processes, (iii) enabling the privatization process in public companies providing public sanitation services and (iv) encouraging the regionalization of provision of services: through the creation of regional blocks, contributing to technical and economic-financial viability, the creation of gains in scale and efficiency and the universalization of services.
Main characteristics of the private sanitation market
The private sanitation market in Brazil is still responsible for a small portion of the sector’s Market Share as a whole, considering that only 23% of the population is served by private companies, according to Aegea estimates.
Below are the main characteristics of the private model for operating water and sewage services:
Granting authority: municipality, state or state company
Regulatory agency: state, municipal or regional entity
Tariff: established through a competitive process (bidding), fixed in the concession contract and adjusted annually based on inflation rates
Obligations of the private entity: achieve the physical goals (water and sewage coverage, reduction of the loss distribution index, among others) established in the concession contract
Concession term: 30 to 35 years
Any situations that result in a change in rights or obligations, with an impact on the economic-financial equation initially foreseen by the concessionaire in the bidding process, may give rise to a request for rebalancing by the private entity. The most common cases consist of: (i) anticipation or addition of regulatory frameworks that result in changes to the investment schedule, (ii) new obligations not foreseen in the initial contract, extraordinary increases in inputs (above inflation), such as, for example , electricity, (iii) situations classified as Fato do Príncipe (increases in taxes other than IR) and (iv) Administration Acts (news imposed by the Grantor) among others.