New legal framework creates water and sanitation opportunities in Brazil

There is increasing government support in Brazil for sustainable projects and cleantech solutions in a number of industries. In July 2020, a new legal framework was put in place for Brazil’s water and sanitation (W&S) sector in order to help the country meet new goals for the universalization of water and sanitation services.

The new W&S legal framework will also create more certainty in the market and increase market access and competition in a sector that has traditionally been controlled by state‑owned companies.

Despite the challenges presented by COVID‑19, Brazil has been moving ahead with the process of regulating the new framework as well as with auctions of some significant infrastructure projects. The country sees sustainable projects as a key part of its recovery, making Brazil a promising market for Canadian cleantech companies.

“The new legal framework encourages private companies to enter the market by bidding on contracts and joining public private partnerships (PPPs),” says Monica McDonough, the trade commissioner in charge of W&S in Brazil as part of her cleantech portfolio, working out of the Canadian Consulate in São Paulo. “We see potential opportunities here in the short, medium and long term.”

New goals for the universalization of W&S services and waste management

The federal government’s goal is to guarantee that 99% of Brazil’s population has access to potable water and 90% to sewage collection and treatment by 2033.

Currently, around 83% of Brazilians have access to potable water, with 53% of the population having access to sewage collection. Also worth noting, almost 40% of water resources are lost through improvised connections and deteriorating infrastructure.

These challenges have only been amplified by COVID‑19 and have created unique opportunities where Canadian companies have proven expertise, such as solutions for:

The new legal framework also includes solid waste management measures to close Brazil’s more than 3,000 unlined, open landfills over the next 3‑4 years. Solid waste PPPs are being auctioned along with water and wastewater services creating demand for generating energy from waste‑to‑energy solutions.

Increased market access and competition for private companies

Market access and competition will be strengthened by the introduction of mandatory auctioning or bidding on projects. The new framework prohibits forming any new Program Contracts, which used to be made between municipalities and state-owned companies without a bidding process.

Contracts in the W&S sector are done directly with municipalities, making it difficult for some projects to gain enough scale to be economically viable in smaller cities and towns.

To increase investments, the new framework takes a regionalized approach to providing services. By serving larger cities and groupings of towns in a single contract, projects will be more likely to reach scale and benefit from efficiencies.

“Canadian companies looking to enter Brazil should target a specific region or market segment,” says McDonough. “Look for a region or project where your solution is well positioned to provide value and where you can develop key local partners.”

Standardized regulations will create more certainty in the market

Brazil’s National Water Agency (ANA) is going to take on a much larger role in Brazil’s W&S industry to help standardize the regulation of services.

Currently there are more than 50 regulatory agencies in the country at the state, regional and municipal levels, which is over a third of the world’s sanitation regulatory agencies. ANA will help standardize regulations for: the quality and efficiency of services, tariffs, accounting practices, conflict mediation and the methodology for providing economic and financial capacity.

“Trade commissioners on the ground in 6 offices across Brazil can help connect Canadian businesses with market intelligence and the right private and public business contacts,” says McDonough.

“International financial institutions will play an important role in partnering with Canadian companies to structure larger investments and projects. National banks in Brazil also make strong local partners and have a keen interest in projects with significant and quantifiable environmental and social impacts,” she adds.

Guide: Sustainable and Responsible Business Conduct in Brazil

The Trade Commissioner Service and Export Development Canada have launched a new guide to provide Canadian investors and exporters with useful information to plan and operate in an economically, socially and environmentally responsible manner in Brazil.

The guide provides a snapshot of the business environment and maps out the main environmental, social and governance (ESG) considerations and risks in the market. The guide also provides insight on relevant legislation and Brazilian agencies monitoring and enforcing compliance.

Canadian companies should exercise caution when bidding on public procurement contracts and entering into partnerships at the local level, as there is a higher risk of bribery/corruption issues. The guide recommends implementing thorough due diligence processes for potential partners and proper controls at the company level to proactively deter and detect compliance issues.

Learn more about sustainable and responsible business conduct in Brazil.

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