How water firm GS Inima will expand its Brazil footprint

Brazilian water firm GS Inima, which is part of South Korean conglomerate GS E&C, is aiming for double-digit revenue growth through 2028 by winning industrial contracts and participating in auctions for water and sewage concessions and PPPs.

A consortium led by GS Inima recently won a 30-year concession for the design, construction and operation of a water reuse facility in Espírito Santo state. The contract was offered by state utility Cesan, and the consortium – formed by GS Inima Brasil and Tubomills – will be responsible for providing treatment services in the Camburi basin and supply steelmaker ArcelorMittal's operations.

In this interview, CEO Paulo Roberto de Oliveira tells BNamericas about the company's plans for Brazil through 2028.

BNamericas: What motivated GS Inima to participate in the auction for the project in Espírito Santo?

Oliveira: Our bid at the auction won and with that we will build a water reuse plant for ArcelorMittal. We decided to participate in the auction because this contract is in line with our business.

We’re part of the largest reused water production project in South America and one of the biggest in the world, Aquapolo, in São Paulo together with [state-run utility] Sabesp, where we supply reused water for a petrochemical complex.

This project in Espírito Santo had been offered last year through another auction, but at the time there were no offers because the project was not well designed. After new preparation work, the project came up for auction again, in a better format and when carrying out our internal feasibility studies, we detected that an offer from our side would make sense.

BNamericas: What are the next steps for this project?

Oliveira: Cesan will now carry out an evaluation of all our documentation to confirm the signing of the contract. They didn't tell us an exact deadline. But I believe the signing will be quick because Cesan considers this project a priority, as the plant to be built by us will replace a plant that is obsolete with environmental problems.

After this contract was signed, GS Inima, together with our business partner, Tubomills, created an SPE [specific purpose company] to assume the contract. After signing the contract, construction will take 24 months.

BNamericas: What’s the amount invested and how will you finance it?

Oliveira: The investment is 240mn reais [US$50mn] and part of this we will finance through [federal bank] Caixa Econômica Federal. During our evaluation process to prepare for the auction, we consulted Caixa Econômica Federal to find out if this project would fit into their financing lines and we received a positive response. In addition to bank financing, another part of the investment will be financed with own funds.

BNamericas: Are you looking at other reused water projects for industries?

Oliveira: This Cesan project is likely to motivate other players to sign such contracts. In the short term, we have information that plans are being developed in Ceará state for a water reuse plant to serve Pecém port, through state utility Cagece. And [national oil company] Petrobras recently signed a contract to supply reused water, so I see this gaining traction.

Using reused water is important for companies because it helps them comply with their ESG obligations, as they are not using potable water in their industrial operations.

BNamericas: What’s the business plan for Brazil?

Oliveira: We developed a 2024-28 plan with an annual revenue expansion of 15%. Within this plan, we will expand our industrial segment, which is related to water reuse projects, industrial water supply and we’re evaluating water and sewage concession contracts and PPPs.

On the industrial side, we’re talking about providing more services to [petrochemical firm] Braskem and we’re carrying out studies for the industrial units of pulp companies Eldorado and Suzano.

BNamericas: What’s the strategy for the water and sewage sector?

Oliveira: We’re evaluating the municipal tenders being structured and the PPPs being planned by state-run companies.

We’re analyzing tender notices from cities like Ourinhos and Brodowski, as well as evaluating the PPP contracts that [Paraná state water utility] Sanepar plans to offer. The state of Sergipe is also in the public consultation phase for its water and sewage concession and in Espírito Santo, Cesan has plans for a PPP. We’re evaluating all of this.

BNamericas: What’s the investment plan for 2024-28?

Oliveira: We don't have a set investment amount because it depends on the contracts we win in the coming years. But whenever we evaluate the contracts to be offered, we see when we will use our own funds and whether there’s support from our controlling shareholder, the industrial conglomerate in South Korea.

In the contracts we take on, we generally use 20% of our own funds and the remainder is financing. Our goal, as I said, is to expand revenue by 15% per year. In 2023, our revenue was around 800mn reais.

BNamericas: Is GS Inima interested in the privatization of Sabesp?

Oliveira: I have discussed this matter with our holding company. In our view, the Sabesp privatization is being structured to be a share offering, with the government maintaining a minority stake in the company. This model tends to be much more attractive for investors with a financial profile compared to operating-focused companies like us.

BNamericas: Does GS Inima have plans for an IPO in Brazil?

Oliveira: We have ruled out an IPO in Brazil. Our controller's idea is that it makes more sense to have a share offering outside Brazil so that the funds raised can be used in all of the company's business units, in Brazil and other countries. But in any case, the Brazilian operation would receive a significant portion of the IPO proceeds, as the unit here represents 50% of the group's revenues.

BNamericas: What bottlenecks currently exist in Brazil’s water and sewage sector?

Oliveira: I think that today the main bottleneck is still project structuring. Projects need to be well structured to be successful at an auction. With the change of government, there were doubts for a while as to whether or not [development bank] BNDES would continue structuring sanitation projects and it appears that it will, which is positive.