Brazil’s Piauí Water and Sewage Auction: A Single Bidder Raises Concerns

Piauí’s recent water and sewage concession auction, held on October 30, 2024, at B3, resulted in a single bidder: Aegea.

The company, already operating in Teresina, secured the contract with a minimal 1% tariff discount and the minimum R$ 1 billion ($178.57 million) outright grant.

The project aims to invest R$ 8.6 billion ($1.54 billion) over 35 years, covering 222 municipalities. However, the auction’s underwhelming performance has raised eyebrows about Piauí’s investment climate.

Earlier this year, over ten companies showed interest. An August auction attempt failed, prompting the government to adjust payment terms. Despite these efforts, only Aegea participated, suggesting deeper issues beyond financial terms.

Experts point to recent events that may have eroded investor confidence. A key factor is the state’s handling of a broadband internet PPP.

Brazil’s Piauí Water and Sewage Auction: A Single Bidder Raises Concerns. (Photo Internet reproduction)

Governor Rafael Fonteles’ administration unilaterally terminated a contract with Globaltask in March 2024, disregarding legal decisions and raising concerns about contract respect.

Aegea’s Challenges and Opportunities

This situation may have deterred potential bidders in the water and sewage auction. Investors typically seek stable environments for long-term infrastructure projects.

Aegea now faces significant challenges. Piauí has Brazil’s lowest sanitation coverage, with only 18% of residents having sewage access.

The company must construct extensive water and sewage networks in a state with low population density and many social tariff users.

Experts suggest the single-bidder outcome indicates a tight economic balance in the contract. Aegea‘s existing operations in Teresina likely influenced its decision to bid, allowing for reduced operational costs.

Moving forward, Aegea must focus on expanding its revenue base through strategic tariff management. The state government needs to establish robust regulatory mechanisms to ensure the concession’s success.

While Piauí has secured an operator for its water and sewage services, the auction’s outcome raises questions about the state’s investment climate. Rebuilding investor confidence may prove crucial for future development projects in the region.