Back to Basics in Brazil

Experts suggest up to R$270 billion is required to provide services to over half the Brazilian population currently lacking access to wastewater treatment.

Pennwell web 400 263

Pennwell web 400 263

Experts suggest up to R$270 billion is required to provide services to over half the Brazilian population currently lacking access to wastewater treatment. WWi summaries findings from the UK Trade & Investment report on environment and water opportunities in Brazil, including the potential for Membrane Bioreactor technology in São Paulo.

Brazil has a rapidly expanding economy: the country achieved economic growth of 7.5% in 2010 to become reportedly the fifth-largest economy in the world. GDP grew to R$3,675 billion, largely due to significant increases in investment and a government stimulus package. Despite a predicted inflation rate of some 6-7% in 2011, economic growth this year is expected to be around 4-5%.

Based on industry feedback, the report conservatively estimates that the environment and water sector will require investment of around R$20 billion per year, for the foreseeable future. The caveats are that the investment required is larger than the resources available from the government and that the legal framework is overburdened.

It also says that the structural delivery framework is in need of significant investment and much of the indigenous population is yet to be convinced of the benefits of 'green' approaches, although Brazil has been an exemplar nation in terms of low carbon initiatives. Potable water and sewage collection and treatment in Brazil are largely the responsibility of the state (77%), with the balance of the services provided by municipalities (15%) and private companies (18% and growing).

Report recommendations: International opportunities

Key opportunities will be part of the supply chain to the country's state, municipal and private companies, either as tier 2 or tier 3 suppliers. These include providing the technological and management solutions for:

- Industrial sludge & sludge treatment (including AD and MBR)

- Water-quality monitoring and testing

- Water treatment

- Process improvement and innovation

- Advice and education to improve skills

- Methods for re-using waste water

- Grey water capture and use.

Some of the state companies have joint ventures with private companies, in particular for towns or groups of towns that have inadequate services.

Drinking water

The amount of water produced in Brazil as a whole (14.3 billion cubic metres in 2008) tracks the population of each state to a large degree. Water loss due to leakage in Brazil is huge. In 2008, it was about 43% and currently it is around 40% – although these are conservative estimates and the real water loss could be higher. The federal government plans to cut this figure in half over the next 10 years. The largest reason behind water loss is leakage (typically two-thirds or more), but additional factors include meter under-registration, unauthorised consumption, meter reading and water accounting errors. Many small towns do not install water meters, but rather charge fixed fees or allocate fees according to housing concentration.

According to the 2008 data, there is a significant variance in the percentage of the population that receives piped water between the different Brazilian states. Two states in particular stand out; less than 40% of the population of Acre and Pará receive piped water. An additional seven states are in the 40-60% band of population served.

The supply of piped water to rural areas is another problem, although many of them are sparsely populated with inhabitants having access to untreated surface water from lakes and rivers as well as ground water boreholes. Some areas also have access to shared piped water via stand pipes.

Many Brazilian states provide a good proportion of treated piped water. There are only five that perform under the 60% treatment threshold. The aim of the federal government is to ensure that all piped water is treated as required by health regulations. The poorer performance of some Brazilian states is reflected in the investment typically allocated to water services and infrastructure. Historically, these states have found it difficult to obtain significant government funding or attract investment from the private sector. The least investment has been in Acre, Amapá, Maranhão, Piauí, Rondônia, Roraima and Tocantins. These are largely states in the in the North and the Northeast.

Wastewater

While Brazil's delivery of treated potable water is very good, the key challenge is treating sewage. Sewage sludge is and will continue to be a problem, as growing levels of sewage are collected for primary or advanced treatment and disposal without treatment becomes increasingly unacceptable.

Current federal legislation in Brazil outlaws combined sewage, requiring sewage and runoff water to have separate infrastructure and treatment (note that only sewage is required to be treated). Given the volume of rainfall in many areas, separate systems make sense, otherwise sewage treatment works would be completely over-run.

However, combined sewage does in fact occur, either via poor planning or more typically tapping into the run-off infrastructure, or the opposite, storm water discharges into the sewers. Since the run-off water usually discharges into storm drains, river tributaries and rivers, any sewage entering the system automatically has a similar and untreated discharge.

A federal secretariat for sanitation, the National Department of Environmental Sanitation (part of the Ministry of the Cities), was created in 2003 to focus on sanitation challenges. Sanitation Plans (federal, state and municipal) were expected by the end of 2010 as requested by the Federal Law 11,445/2007. However, the deadline has been postponed to 2012. Another issue is the weighty federal taxation requirements (since 2003) for various taxes (PIS/COFINS/CSLL/IR). For example, Sabesp paid (in 2009) R$1.26 billion in federal taxes and at the same time invested R$1.83 billion.

The challenge for the state company, which has been responsible for approximately 50% of the total Brazilian investment in sanitation, is that this investment is handicapped by taxes corresponding to 70% of its total.

Industry structure

The sector is fairly concentrated. Each Brazilian state has a water company, a legacy from the 1980s, making 27 state companies in total. These account for 77% of the country's water and sanitation services. The recognised top six state companies in Brazil (SABESP, SANEPAR, COPASA, CEDAE, CEASB and EMBASA account for almost half of the country's water and sanitation services).

Case study: São Paulo

CETESB monitors developments in São Paulo's water sector, with a minor role performed by the municipal environmental secretary. There are two large man-made reservoirs to the south of the city - Guarapiranga and Billings. The catchment area for the reservoirs is the hill range to their south and west , as well as the Pinherios River (which now flows from north to south – a flow that was reversed many years ago). There is also a west-to-east water main that allows water from the west into the east reservoir when the water level in Billings is low. Testing has shown there is no backwash of pollution.

Currently, the ABCD (Santo Andre, Mauá, Diademaand and Sao Caetano do Sul) regions buy water from Sabesp plants and distribute it locally. The state energy secretariat controls the river flows, including the River Pinheiros. Traditionally, aluminium sulphate, or another such coagulants, is put into the water as part of the treatment as it ionises suspended solids (flocculates) and then enables the solid suspension to be filtered. However, dispersal of the resultant sludge is a problem. There are no non-landfill solutions at present. Instead, much is dispersed into the rivers (and the ocean), as is regularly the case in many other countries.

Activated sludge for treating sewage and industrial wastewater using air and a biological floc composed of bacteria and protozoans is used in São Paulo and is becoming increasingly common in Brazil's other major cities. However, Membrane Bioreactors (MBR) is a growing opportunity. In terms of reputation and perception of technical capability, the UK lags behind the US/Canada (GE), Germany (Koch), Singapore (Hyflux) and Japan (Kubota), since it has no local membrane manufacturer.

The provision of services is split between municipalities (around 15%) and private companies (18%). The presence of private companies is expanding, albeit gradually. However, some of the state companies have formed joint ventures with private firms, particularly where towns or groups of towns have inadequate services. In many cases, the larger contractors (such as Odebrecht, Galvão, Camargo Correa and Querios Galvão) have created subsidiaries to operate area concessions for the state and municipal companies.

Developments

In January 2007, a new water and sanitation bill (Law 11.445/07) was inaugurated in Brazil, outlining relevant federal policy. It was designed to increase investment in the sector and thus access to water and sanitation. The law was largely a compromise and failed to address some key issues and challenges, says the report. At the same time, the Programme for Accelerated Growth (PAC) was announced, channelling R$40 billion to the waste sector between 2007 and 2010.

Although meant for broad investment such as sewage treatment, rainwater drainage, solid waste management and water supply, most of it was spent on sewage collection and treatment. PAC 2, which is planned for 2011 to 2014, will invest an additional R$40 billion. Nonetheless, industry estimates indicate that, in 2009, 68% of collected sewage had secondary treatment. Recent research by Atlas Brazil and the National Water Agency (ANA) estimates that R$90 billion needs to be invested between now and 2025 to guarantee satisfactory water and sanitation services. This equates to about R$3.6 billion annual investment in water and sanitation to achieve universal access.

Industry experts, however, believe that a far greater investment in sanitation (between R$120 billion and R$270 billion) will be required to provide services to the 53% of the Brazilian population still without sewage treatment. At the current rate of investment, the country will take 60 years to achieve the target.

Conclusions

A key driver for demand will be increasing intervention and policy by the federal and state governments. The skill set in Brazil is good, but not of sufficient quantity. There is a perception that there is a knowledge and technology gap for sewage treatment in Brazil. Sewage sludge is expected to be a growing problem in the future as more sewage is collected for primary or advanced treatment.

At present, there is insufficient infrastructure or processes to deal with the predicted quantity (let alone current quantities). Brazil's environment and water sector presents vast opportunities. It is fundamental to understand the market before positioning products and services for market entry. Opportunities are likely to outweigh risks, particularly as business contracts in Brazil are often based on trust and acceptability, thus negating the need for companies to revert to legal instruments to resolve cases of dissent or disagreement.WWi

Author's note: Information for this article was taken from the UK Trade & Investment (UKT&I) report: UK Environment and Water Opportunities in Brazil. Author of the original report was Jamie Douglas-Watson, managing consultant from the business consultancy team of URS Scott Wilson. He was seconded by UKT&I to identify short and medium-term opportunities in Brazil's environment and water sector.

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