Brazil’s new water laws could open floodgates to private players

A new water and sanitation regulatory framework in Brazil is expected to increase opportunities for private sector investment and privatisation

Brazil’s Senate approved the new regulatory framework for the water and sanitation sector in June, and which was enacted in July, and which could lead to an increase in opportunities for privatisation and private investment in the water and sanitation sector in Brazil as municipal governments will have to launch tender processes for projects, according to a note from law firm Clifford Chance.

Unlike all other Brazilian infrastructure sectors, the water and sanitation sector has not yet been fully opened to private investment. The new regulatory framework sets the goal of universal coverage of sanitation services in Brazil by 2033, and achieving this goal is expected to require investments in the range of 500-700 billion reais (approximately $90-130 billion), according to the law firm. 

Brazil considers water and sanitation as essential services. However, approximately 35 million Brazilians do not currently have access to potable water, and about 100 million do not have access to sanitation infrastructure. The regions with the lowest coverage levels are the north and northeast of the country.

Although the current regulatory framework does not prevent the participation of the private sector, state-owned water and sanitation companies (SOWSCs) cover about 94 per cent of Brazilian cities, while private companies cover only 6 per cent.

The changes proposed by the new framework should lead to a reduction in the participation of SOWSCs and an increase in the coverage provided by private companies, according to the law firm’s analysis, which was penned by partner Gianluca Bacchiochi (pictured), with counsel Anja Pfleger Andrade, senior lawyer Jeffrey Susskind, associates Patricio Abal and Laura Clara Loaiza, and staff attorney Mariana Urban.

However, as in any other sector, it will be essential for state and municipal governments to properly structure the projects to attract private companies and their finance providers to participate, Clifford Chance says.

Under the new framework, municipal governments will be required to implement tender processes in which SOWSCs will compete against qualifying private companies as new concessions will be required to meet the country’s goals for access to water and sanitation, and which are that, by 2033, 99 per cent of the population have access to potable water and 90 per cent to sanitation infrastructure, as determined by the country’s 2013 Basic Sanitation Plan.

According to Clifford Chance, one of the challenges presented by the privatisation of essential services is ensuring that private companies will continue to provide or expand services in cities or regions where the performance of such services does not meet their profitability requirements. As a solution, the new framework enables the tendering of projects pairing municipalities or regions where the performance of the services is expected to be profitable with smaller, isolated or impoverished jurisdictions. The municipalities are not required to participate in block offerings, but they are incentivised to do so because, by themselves, they could prove to be less economically attractive to private companies when compared to a block of municipalities or regions.