Spotlight: Brazil's water services sector

New contracts and rising investment amounts are attracting new players to Brazil’s water services sector.

After having won a PPP contract offered by Paraná state water firm Sanepar, Spain’s Acciona is the newest sector player.

"The entry of new players is very positive and demonstrates the maturity of the sector, which means greater institutional predictability and good contracts, which results in higher legal certainty," Paulo Dantas, an infrastructure and project financing specialist at law firm Castro Barros Advogados, told BNamericas.

“Furthermore, social infrastructure is on the rise and in addition to bringing the desired benefits to the population, it can bring very good returns for investors,” he added.

Sanepar offered three 24-year contracts for three lots on September 20, which were won by Acciona, Iguá Saneamento and Saneamento Consultoria, a group formed by Aegea Saneamento and investment funds Perfin and Kinea.

"The three contracts, which will help the state accelerate the full coverage of sewage collection, projects investment worth 2.9 billion reais [US$524 million] in 112 municipalities in the state," Sanepar said in a statement.

The lot 1 contract involves 36 localities in the state’s center-east and was won by Saneamento Consultoria, which offered to charge 5.17 reais per cubic meter of measured sewage.

Lot 2, covering 48 localities in the west, was won by Acciona, offering to charge 4.72 reais, and lot 3, involving 28 localities also in the west, went to Iguá Saneamento, which proposed charging 4.75 reais.

In addition to a series of works, the companies will also carry out maintenance and operation and invest a total of 3.1bn reais.

The water sector has undergone a major shift since regulations changed in 2020 to ease the entry of private players.

Initially, companies such as Aegea, Iguá Saneamento and BRK gained scale, while more recently new companies have been entering the segment as investments and new projects materialize, considering the obligations established in the legal framework that involve full national coverage by 2033.

Earlier this year, local utility Equatorial Energia acquired a 15% stake for 6.9bn reais of Brazil's biggest water utility Sabesp, which operates in São Paulo state, as part of the company's privatization.

Meanwhile, Sergipe state offered a water services concession earlier this month, which was won by Iguá Saneamento, beating three other proposals, including from investment firm Pátria Investimentos, seeking to enter the sector.

Patria is still interested in the sector and has hired former Iguá Saneamento and BRK Ambiental executives to map opportunities. It also sought partnerships with local infrastructure companies to execute works as part of contracts yet to be offered, a person with knowledge of the fund’s plans told BNamericas on condition of anonymity.

Spain’s Sacyr also bid for lot 1 and 2 in consortium with Cembra Águas do Paraná, albeit unsuccessfully.

The sector still has room for new players. "Although the biggest contracts have been negotiated, there is still a lot to be done in Brazil in terms of sanitation, so I still believe that we will have great opportunities in the future," said Dantas.

"The main challenge, of course, is local particularities and not only in terms of Brazil, but the region itself. Solutions in a given region will not be the same in another. Despite the challenges, I believe it is a positive scenario," he added.