BNDES expects water and sewage investments of US$15bn through 2026

Brazilian development bank BNDES expects new water and sewage concession and PPP contracts worth 80bn reais (US$15bn) through 2026.

The projects will be implemented in seven states and will receive 29.5bn reais in BNDES financing, the bank said in a statement.

“The challenge we face is gigantic. BNDES will deliver its part, we will innovate, we have extremely competent professionals," said the bank’s head, Aloizio Mercadante.

Since mid-2020, multiple contracts have been offered to the private sector as a result of a regulatory change that facilitated the entry of private firms into a sector long dominated by state-run players. The goal of the regulatory framework is to guarantee full water and sewage coverage for the entire population by 2033.

BNDES has played a key role in helping states and municipalities to structure concessions and PPPs, as well as being a major financier of the projects.

However, some aspects of the financing side are changing.

"Some state governments have pressured the federal government and BNDES to increase the proportion that the bank finances of the auction fees. Governors want the highest fee possible to use in their budgets," a high-level executive from a water and sewage firm that has participated in recent auctions, told BNamericas on condition of anonymity. 

"With BNDES financing a larger portion of the fees, companies are automatically more aggressive with their bids at the auctions, and in the long term it’s likely to impact users with higher tariffs as the winning firm will have to find ways to pay the bank back," said the executive.

Depending on the state, companies can win an auction by offering the highest fee or the lowest user tariff.

In September, Iguá Saneamento won the water concession offered by Sergipe state with a bid of 4.5bn reais, which was considered highly aggressive as the minimum fee for the 35-year contract was 2bn reais. 

Iguá competed against sector players BRK Ambiental and Aegea Saneamento, and investment firm Pátria Investimentos.

The auction was held shortly after the cities ministry raised the limit for private firms' payment of sanitation auction fees through local bonds, or debentures, from 50% of the amount offered to 70%. 

This change is directly linked to BNDES since the bank has been the main buyer of the debentures issued by water and sewage firms.

Mercadante warned about potential distortions caused by the trend of high fees paid at the auctions, saying it can have a negative impact on user tariffs and make concessions less sustainable in the long term. 

NEW CONTRACTS 

BNDES is busy structuring new water and sewage contracts in several states that will be offered through 2026.

In Paraíba, a PPP will be offered that will demand investments of 5.7bn reais. BNDES is planning to finance 2.3bn reais of the total.

In Rondônia, the bank is structuring a concession worth 5.8bn reais, with BNDES looking to provide 1.5bn reais of the financing.

BNDES is also structuring concessions worth 18.2bn reais in Pernambuco, with the bank putting up 9.2bn reais.

Pará will see a concession for its capital, Belém, with investments of 18.5bn reais and BNDES financing of 5.1bn reais.

Meanwhile, in Maranhão, a concession is being structured that will demand investments of 18.7bn reais, with BNDES putting up 6.2bn reais.

In Goiás and Rio Grande do Norte, two PPP contracts will be offered with investments of 6.6bn reais and 3.2bn reais, respectively, and financing from BNDES of 3.4bn reais in the first case and 1.8bn reais in the latter.