Sanitation framework expands investments and multiplies the BNDES’ portfolio

A little over a year after the entry into force of the new regulatory framework for basic sanitation, a measure that encourages the participation of the private sector in the sector, the government points to a jump in the volume of investment projects and financing mechanisms for the area.

Survey of the Economic Policy Secretariat of the Ministry of Economy in advance of sheet shows that the total value of sanitation projects under contract in the BNDES (National Bank for Economic and Social Development) portfolio was multiplied by ten after the sanction of the measure.

The values, which were around BRL 3 billion a year until 2019 (before the approval of the new rules), reached BRL 35.3 billion in the 12 months ended in September this year.

BNDES helps municipal and state governments to prepare the modeling of sanitation projects.

Among the examples of projects unlocked after the milestone are concessions in Alagoas, with investments of BRL 2.6 billion, in Amapá, with BRL 3 billion, and in Rio de Janeiro, with BRL 29.7 billion.

On another front of analysis, the folder states that, after the entry into force of the framework, the issuance of debentures for investments in sanitation also had a strong increase.

Debentures are debt securities issued by companies as a way to finance their projects. The holders of these fixed income securities are remunerated by the company at a previously agreed rate.

The volume of issuances of these bonds in the sanitation sector increased from an annual average of BRL 2.4 billion from 2013 to 2019 to BRL 12 billion in the one-year period ended in September 2021.

Responsible for the technical note, the Undersecretary for Macroeconomic Policy at the Ministry of Economy, Fausto Vieira, says that the State has never been able to satisfactorily supply this type of infrastructure so that services are universal.

For him, this scenario begins to change with the removal of moorings to enable the participation of the private sector in the sector.

“There is already a very strong change in projects and financing after the new legal framework, that is clear. Going forward, we will see a higher percentage of these investments in GDP share [Produto Interno Bruto], which will enable a democratization of these services”, he says.

Although the law came into force in July of last year, the decree that regulated the new rules was issued just five months later, in December.

Vieira explains that these projects are long-term and, therefore, the simple approval of the legal framework by Congress has already unlocked the initiatives. Now, according to him, it is necessary to wait until the projects effectively unfold into investments.

The sanitation framework was treated as one of the priorities of the team of minister Paulo Guedes (Economy).

The law expands the possibilities for private companies to provide services. Companies that win the bid will have to commit to efficiency and universalization goals.

The law defines that, by December 2033, access to drinking water in the country must be expanded to 99% of the population. The treatment and collection of sewage should reach 90% of homes in the same period.

The deadline for achieving the goals may be increased by another seven years. This will be adopted if the company providing the service proves technical or financial unfeasibility.

Before the text was approved, the economic team argued that it would be impossible to achieve these goals through government spending.

At the time of enactment of the law, in 2020, only 6% of cities were served by the private sector. State-owned companies were responsible for services in 94% of the municipalities.

The government estimated a total of 104 million people without sewage collection services in the country, and another 35 million Brazilians without access to treated water.

The estimated investment potential for the universalization of services, according to government officials, is R$700 billion.

The technical note of the folder defends the advance of privatizations and concessions to expand the service to the poorest.

The agency argues that the state service is less efficient, has limited coverage and still maintains privileges that are borne by society, such as an average salary higher than that practiced by the market.

“Privatizations and concessions generate greater efficiency and provide the population — especially the most vulnerable — with greater access to goods and services,” says the note.

The document uses telecommunications as a successful example of a sector that came to be governed by private initiative, enabling a strong increase in investments, cost reduction and universalization of services.

The folder cites a 2016 survey by the BNDES that compared the volumes of investments in telecommunications and sanitation. While spending on telecommunications in relation to GDP in Brazil was higher than in countries in Europe and the United States, spending on sanitation was lower than even the average for Latin America.

“There is a need to attract participants from the private sector so that they can make contributions and become the engine of transformation in the sanitation sector, as is the case with the expansion of investments in telecommunications”, states the document.