The largest sanitation project in the country

With investments totaling R$ 4.5 billion (US$ 2.25 Bn), the project - which will be executed by private enterprise - aims to collect and treat 90% of the sewage produced by the Metropolitan Region of Recife in 12 years’ time

To address the immenseness of the project that targets the universalization of sanitation (sewage collection and treatment) for the ‘Região Metropolitana do Recife’ (RMR  - Metropolitan Region of Recife), which involves investments estimated at R$ 4.5 billion (US$ 2.25 Bn), the government of the state of Pernambuco opted to establish a Public-Private Partnership (PPP). The goal of the initiative is to increase the current level of basic sanitation services to the population of the 14 municipalities that make up the RMR, plus the city of Goiana, from 30% to 90% coverage with 100% of the collected sewage receiving treatment. Goiana, located north of Recife in what is known as the ‘Zona da Mata’, was included in the package because, in addition to the existence of a ‘hub’ of industries there, producing especially pharmaceuticals and related chemicals, the city will receive a FIAT (automaker) factory which is under construction and scheduled to begin production in 2014. In all, about 3.7 million people will benefit from the project. In the state’s capital - Recife -alone, 1.5 million inhabitants will be benefited by the expansion of sanitation.

The billion-dollar PPP tender, launched in 2012, was awarded to ‘Consórcio Grande Recife’, a consortium comprised of ‘Foz Brazil’ (an Odebrecht Group company) and ‘Lidermac Construções’  which, besides executing the expansion works, will assume all the collection and treatment of sewage for the region – a job that is presently performed by the ‘Companhia Pernambucana de Saneamento’ (COMPESA - Pernambuco Sanitation Company) which is linked to the state government. For the 35-year term of the concession agreement, signed in February, the consortium will obtain revenues estimated at R$ 16.7 billion (US$ 8.35 Bn).

Nationwide, sewage collection services are provided to 46.2% of the population. Of the sewage collected, 38% receives some type of treatment. A survey conducted in 2011 by the ‘Instituto Brasileiro de Geografia e Estatística’ (IBGE - Brazilian Institute of Geography and Statistics) reports that 71.8% of Brazilian municipalities did not even have a municipal policy on basic sanitation. In the state of Pernambuco, according to COMPESA, only 20% of the population is served by the network of sewers whose sewage does not receive any kind of treatment. In the case of Pernambuco state capital Recife, the sanitation problem is severe and dates back to Colonial Brazil, since the sewage system mixes with rainwater drainage systems, with human waste getting discharged and washed into open channels spread throughout the city.

Only 28% of the metropolitan region has sanitation services, with Recife, Olinda, Paulista and Jaboatão dos Guararapes at the bottom of the ranking that was prepared by ‘Instituto Trata Brasil’ including the 100 largest cities in the country. Jaboatão dos Guararapes, with 644,000 inhabitants, is the second largest city in the RMR and is among the ten worst-ranked municipalities with over 300,000 inhabitants, with sanitation service covering 7.6% of demand. In addition to poor coverage for the current needs, there is greater pressure on the RMR’s sanitation network due to the new ventures that are underway in the local economy, particularly in the capital and in the region of Suape, in addition to the industrial hub that is developing in Goiana.

Although it has transferred to the consortium the operation of the system (which will total over 9,000 km of sewers), COMPESA will remain in control of basic sanitation for the region, overseeing compliance with quality indicators that will be required of the consortium. “The company has the contract responsibility for the PPP and will supervise both the works and the operation – present and future,” reveals Ricardo Barretto Vasconcelos, Director of New Businesses at COMPESA. According to the executive, of the US$ 2.25 billion for works, US$ 500 million will be spent by the public sector involving all three levels of government: federal, the state of Pernambuco and, to a lesser degree, the city halls of those cities that are impacted by the works.

The project should be benefitted by a measure taken in late June by the ‘Ministério das Cidades’ (Ministry of Cities), which revoked a ruling that prohibited the use of public funds for investments in sanitation that were assigned to private concessionaires or PPPs. Until the change, the funds of the Federal Budget could only be released for investment in public utilities companies (water and sewage). Now, with this decision, the possibility of direct participation in the RMR project is open to the Federal Government.

When the private group takes over the collection and treatment of sewage for the Greater Recife Area and Goiana, scheduled for the second half of this year, along with the engineering plan for new works, transferals from the state government will also begin. In the first year of the concession, depending on the pace of recovery of the operation of existing sanitation services and the new works, COMPESA will transfer to the consortium 50% of its revenue, rising to 70% in the second year and 86.5% from the third year on. “By taking over these services, the consortium becomes responsible for all of the region’s sanitation system, including the operation thereof and emergency works that may be required until the implementation of the new project,” Vasconcelos notes. “From that point on, the consortium begins to receive a scaled percentage of COMPESA’s revenue in consideration for the services rendered and as part of the PPP.” The executive underscores that the city resident or the company installed in the region encompassed by the project will continue to be a customer of COMPESA . “There is no change either in the pricing policy for supplying of water and the existing sewage services which are adjusted annually and revised every four years,” says Vasconcelos, who dismisses the possibility of a differentiated increase in tariffs on account of the project. The tariff policy will remain under the authority of the Regulatory Agency of Pernambuco (ARPE) and the rules that apply to ‘social-interest’ tariffs remain unchanged, according to the director of COMPESA.

It is estimated that, in view of the size of the project that is currently underway, there will be a substantial impact on business in the region and on the creation of jobs directly in the construction works and in the operation of the system - and indirectly in local trade and services. In addition to the companies that form the consortium, several other companies are expected to be involved during the construction of the project - from contractors; engineering, service and maintenance companies; to suppliers of machinery and equipment.

According to a press relations spokesperson for Foz do Brasil/Odebrecht, there is as yet no assessment regarding the manpower required for the project or the amount of materials - such as cement, iron/rebars, pipes, and transportation services (trucks, tractors) and equipment -  that will be required. Only as of the completion of the engineering plan, which is presently underway, will these data become available, says the company’s press release.

Recife: concessions are nothing new

Although the policy governing Public-Private Partnerships in sanitation is recent, the concession of sewage/drainage services already existed in Recife. In 1838, the city signed a 35-year contract with the Companhia Beberibe for supplying of water and with the Recife Drainage company for sewage collection. However, with the growth of the population of the capital, which rose from 20,000 in the mid-19th century to about 100,000 inhabitants in the early 20th century, water and sewage services were eventually re-governmentalized since those companies were unable to handle the new demand.

As of 1909, hygienist Francisco Saturnino de Brito, patron and champion of sanitation in Brazil, took on the task of expanding the collection of sewage in Recife. He established sanitation networks for 11.8 square kilometers; which was almost all of Recife at that time. According to a survey conducted by the ‘Jornal do Commercio de Recife’ (a local newspaper), Saturnino’s plan was the last major investment in the sector in the capital of Pernambuco state. Over the years, supplying of water was expanded, reaching 95% of the population, but sanitation dropped, especially when Recife became a metropolis in the 1970’s.

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