The Next Winner in Brazilian Sanitation Will Not Be Decided at the Auction. 

It Will Be Decided in Execution.

The sector is no longer competing for concessions. It is now competing for execution capability.

By Luiz Fernando Fabbriani

For years, the Brazilian sanitation market was defined by the excitement of major concession auctions.

Who offered the highest bid.

Who secured the largest number of concessions.

Who announced the most ambitious investment program.

Since 2020, Brazil has completed 31 sanitation auctions, representing approximately R$331 billion in contracted investments, with 82% of that amount concentrated in the privatizations of Sabesp and Corsan.

But that cycle is changing.

Around 13 major projects remain under development, representing approximately R$115 billion in additional investments and the potential to expand water and wastewater services to nearly 36 million people.

The next phase, however, will be fundamentally different.

Success will no longer belong to those who acquire the largest number of concessions.

It will belong to those capable of delivering what they promised.

Today, investors, boards of directors and financing institutions are asking a different question.

Yesterday:

"Who won the auction?"

Today:

"Who can execute?"

The market no longer rewards those who simply acquire assets.

It rewards those who transform assets into value.

The change may appear subtle.

In reality, it fundamentally changes how sanitation companies create value.

Capital Exists. The Bottleneck Has Changed.

Capital for infrastructure has never been more abundant.

BNDES.

IDB.

Capital markets.

Blue Bonds.

Infrastructure debentures.

Infrastructure funds.

Private equity.

International investors.

In just a few months during 2023, Aegea and Iguá together raised approximately R$9.3 billion through infrastructure debentures, representing one of the largest financing windows ever seen in the Brazilian sanitation sector.

Access to capital is no longer the primary challenge.

The real bottleneck has shifted.

Execution capability.

The Problem Was Never the Financial Model.

Feasibility studies are generally robust.

Financial models are sophisticated.

Forecasts are detailed.

Concession contracts are carefully structured.

But once the contract is signed, reality begins.

Projects.

Environmental licensing.

Engineering.

CAPEX delivery.

Water-loss reduction.

Billing and collection.

Technology.

Municipal stakeholders.

Regulators.

Suppliers.

People.

It is precisely during this transition—from signing a concession agreement to transforming investments into operating infrastructure—that a significant portion of economic value begins to disappear.

The Numbers Illustrate the Scale of the Challenge.

Five years after Brazil's New Sanitation Framework, approximately 85% of the population has access to drinking water, while only 56% has adequate wastewater collection, and merely 65.4% enjoys access to both services simultaneously.

At the current pace of execution, universal wastewater coverage would only be achieved around 2066—more than three decades after the legal target established for 2033.

Another figure is even more striking.

Brazil still requires approximately R$454 billion in additional investments to achieve universalization.

This represents approximately R$45 billion per year.

During the past five years, annual investments averaged just over R$20 billion.

Investment levels must more than double.

Yet capital alone does not build infrastructure.

Capital finances projects.

Execution delivers infrastructure.

There Is a Hidden Asset Inside Existing Concessions.

Brazil loses, on average, 37.8% of all treated water before it reaches customers.

In some municipalities, losses approach 50%.

According to a study by Trata Brasil and GO Associados, reducing average losses to 25% could generate approximately R$40.9 billion in economic benefits by 2034.

This reveals something important.

Perhaps Brazil's largest sanitation expansion project is not building another treatment plant.

Perhaps it is operating existing infrastructure more effectively.

The Question Has Changed.

Yesterday:

"How much should we bid?"

Today:

"How do we ensure that every invested dollar creates value?"

That single question completely changes how a concession should be managed.

It is precisely within this context that some of the sector's most mature operators are evolving their governance models toward a Performance Office.

Not to produce dashboards.

Not to generate more presentations.

But to accelerate better decisions.

A Performance Office connects strategy, engineering, operations, commercial management, finance and regulation into a single decision-making framework.

Among other priorities, it continuously monitors:

• Physical and financial CAPEX execution
• EBITDA and cash generation
• Operational productivity
• Water-loss reduction
• Energy efficiency
• Revenue per customer connection
• Collection efficiency and delinquency
• New customer connections
• Regulatory compliance
• Progress toward universalization targets

But above all, it continually asks one question:

Are we truly creating value?

Because indicators alone do not transform an organization.

The decisions made from those indicators do.

Producing KPIs is relatively simple.

Turning them into decisions—month after month, project after project, municipality after municipality—is what creates lasting value.

The Market Has Entered a New Phase.

The next leader of Brazil's sanitation industry will probably not be determined by the largest balance sheet.

Nor by the largest financing package.

Nor by the largest investment fund.

It will be determined by the ability to make thousands of correct operational decisions, consistently, over many years.

For a long time, competitive advantage meant winning auctions.

Over the coming decade, competitive advantage will mean executing better than everyone else.

Contracts do not create value.

Completed projects do.

Well-managed performance indicators do.

Timely decisions do.

The next winner in Brazilian sanitation has probably already won its auction.

Now it must win execution.

Because, in the end, concessions are awarded in a single day.

Value is built over decades.

References

• Trata Brasil — Investment in sanitation must more than double to achieve universalization
• Trata Brasil / GO Associados — 2024 Water Loss Study
• Poder360 — Upcoming sanitation auctions expected to contract R$115 billion
• CNN Brasil — Record capital raising expected to accelerate investments in sanitation
• CLP – Center for Public Leadership — Brazil's sanitation challenge five years after the New Legal Framework

Keywords: #Sanitation #Infrastructure #Governance #PerformanceManagement #Execution #CAPEX #ValueCreation #PerformanceOffice

About the Author

Luiz Fernando Fabbriani has more than 40 years of experience in infrastructure, with leadership roles spanning engineering, sanitation, energy and strategic investment development. Over the past decade, he has focused on the intersection of CAPEX execution, operational performance, governance and value creation, advising investors, boards of directors and infrastructure operators on the successful execution of complex capital-intensive projects.