Pará state to offer US$3bn water concession contracts

Northern Brazil’s Pará state published a notice for water services concessions involving investments of at least 18.8bn reais (US$3bn).

The sector is undergoing a major transformation, sparked by a 2020 reform that requires states and municipalities to achieve full coverage of water services by 2033 or face restrictions in federal funding.

In response, local governments have offered a series of concessions and PPPs, opening the sector to private investment.

The concessions at Pará were structured by development bank BNDES and are for four lots in 126 of the state’s 144 municipalities. An auction will take place on April 11 on the stock exchange.

"The participation of BNDES has been crucial in helping states organize sanitation contracts involving multiple municipalities. Without BNDES's help, it would have been difficult to have so many contracts of this type being offered. Thanks to its support in structuring these contracts, 2025 will continue to see sanitation, alongside highway concessions, as [one of] two major drivers of Brazilian infrastructure investments," Alberto Sogayar, an infrastructure lawyer at Sogayar e Alcântara Advogados, told BNamericas.

In a statement, BNDES said that the bidder offering the highest fee for blocks A, B, C or D will win. The 18 municipalities already served by private players are excluded.

The minimum fee for block A is 1.04bn reais, for block B 19mn reais, 400mn reais for block C and 34mn reais for block D. 

The concessions are valid for 40 years and require investments of 6.2bn reais, 4.6bn reais, 3.6bn reais, and 4.4bn reais in the first 14 years, respectively.

Headwinds

Congress recently approved a tax reform, which may lead to higher taxes in the sector.

Companies currently pay 9.25% in PIS and Cofins federal taxes and are exempt from state tax ICMS and municipal tax ISS.

But taxes will increase to around 26.5%, as the reform will implement VAT. The new tax regime will be rolled out gradually between 2026 and 2033.

Industry association Abcon said the new tax model will force companies to demand contract revisions and is likely to lead to a rate rise of 18% for consumers.

"This revision of contracts will significantly impact the timeline companies have to promote the universalization of water and sewage services throughout the country, which is even more concerning. We are losing the opportunity to achieve this goal by 2033, which would bring dignity to 100mn Brazilians who still lack sanitation," Abcon president Christianne Dias said in a recent statement.

The new tax regime will immediately affect 4,000 contracts, according to Abcon.