Brazil eyes US$4.7bn in water services contracts as sector expands north

The Brazilian water services sector is expected to see at least another 27.4bn reais (US$4.66bn) in contracts offered this year, with some major opportunities up for grabs despite some headwinds.

The most advanced contracts set to be offered in the coming months are being structured by development bank BNDES and involve the northeastern state of Pernambuco and northern states Rondônia and Pará.

The largest of these is the planned concession in Pernambuco, with total investment expected to reach 18.9bn reais. The project is designed to benefit 9.2mn people in the state. According to a BNDES spokesperson, the auction is scheduled to launch during the second half.

Meanwhile, Rondônia is preparing to offer a 35-year concession contract, with projected investments of 4.9bn reais. The initiative is expected to serve around 1.27mn people, with the auction slated for the second quarter of 2025.

In Pará, BNDES is preparing to re-offer one of the lots from a recent concession auction.

Last week, Brazilian water utility Aegea emerged as the big winner in Pará’s water services concession auctions. The firm secured contracts for three of the four lots available, paving the way for total investments of 15.2bn reais in the state.

Lot C, however, received no bids. Covering 27 cities, it involves estimated investments of 3.6bn reais. BNDES is currently working to restructure this contract, with plans to re-offer it in the coming months.

Since mid-2020, Brazil's water and sewerage sector has been undergoing a major transformation, following the approval of regulations that require local governments to achieve full water and sewage coverage by 2033.

Governments that fail to meet these goals risk losing access to federal funding. This prompted a nationwide push to structure concession projects, public-private partnerships (PPPs) and, in some cases, privatizations to comply with the new rules.

After an initial wave of contracts mostly concentrated in Brazil's wealthier and more populous southern and southeastern states, attention is now turning to the northern and northeastern regions.

"The northern and northeastern regions represent an additional challenge for companies, as the contracts require proportionally higher capex. These are regions that have historically had lower water and sewage coverage rates compared to the south and southeast, which demands significantly more investment," Percy Soares Neto, former head of water and sewerage concessionaires' association Abcon, told BNamericas.

"In addition, since these regions have a larger low-income population, this represents a risk for private sector operators," he added.

According to Abcon, the volume of new contracts in the north and northeast could surpass BNDES' expectations, as states like Paraíba, Alagoas and Bahia are also considering opening up contracts to private sector participation.