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June 29, 2020

Sanitation Infrastructure in Brazil - A new law and (finally) US$ 130 billion for investment opportunities in the next years

Infrastructure

After many years of stalling on political debates, the Brazilian Congress has just approved a bill of law that is expected to unlock Brazil’s sanitation sector for private investment. The President is expected to sanction the new law in the next days. 

With more than 200 million inhabitants and more than 5,000 cities, the country has always suffered from a poor and confusing regulation structure controlled by municipalities, but with a significant weight of state-owned enterprises (SOEs) created by some states.

Together with the budget limitations of states and municipalities, nearly 60% of the population do not have sewage treatment, 50% have no sewage collectors, and 20% have no access to treated water, with only 6% of the current sanitation infrastructure privately owned.

Considering this dreadful scenario, the Federal Government claims leadership for the future of the sector to solve this gigantic gap, fixing universalization goals for 2033. The National Water Agency (ANA) will now have the task of creating a federal guideline to steer the several municipal sanitation regulations in the right direction and follow up on the implementation of the development plans by the municipalities to achieve these goals. Municipalities will have 12 months from the sanctioning of the law to design their plan to achieve these goals.

There will be funding and other incentives for the municipalities to adopt ANA guidelines, which will foster standardization of the regulations. From now on, new projects will be awarded exclusively as a long-term concession, through open competitive processes. SOEs and private investors will compete in these bids in identical conditions.

In order to respect existing contracts, the current partnerships between SOEs and municipalities will be allowed to continue. Still, the renewal will be conditioned to the achievement of the universalization goals. 

Since the implementation of universalization plans will require significant investments by SOEs, it is expected that this will drive privatizations throughout the country. BNDES, the Brazilian Development Bank, is already structuring privatizations in two states.

According to the new law, there will be binding mechanisms to allow neighbor municipalities to form clusters, so that projects will gain scale and sustainability. BNDES will also take the lead role in modeling these mechanisms. The plan is to attract investments to the whole country and not only for the already big cities.

The new sanitation law is expected to have a significant role in moving the Brazilian economy in the years following the Covid-19 crisis. The estimates for all businesses are that it can originate amounts to R$ 700 billion (approximately US$ 130 billion), not to mention the strong impact the law will have on public health, environmental, and development matters throughout Brazil.

The Infrastructure team of TozziniFreire is closely following these developments. We are at your disposal for any information that your company may need in order to invest in the sanitation sector in Brazil.

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