A resident in Rio de Janeiro’s largest favela, Rocinha, Jose Martins is worried. Earlier this year, Rio’s city council voted to sell the state-owned water and sanitation company, CEDAE, a move that Martins believes puts access to water and sanitation at risk for almost 50,000 residents in Rocinha alone.
state has a social obligation, so many of us here pay a symbolic price,” he
says. “I don’t imagine that a business will allow people to pay as little. If
this happens, people won’t be able to pay. If they can’t pay, the company will
cut off their water.”
Martins is not the only one worried about the wider implications of the sale in
Rio. In the weeks leading up to the vote, protests broke out on a weekly basis
in the city center, stopping only when military police resorted to tear gas and
CEDAE’s sale is part of a deal between the state of Rio de Janeiro and Brazil’s
federal government, in return for financial help. The state, which has a $2.9
billion deficit to plug by the end of the year, declared a financial emergency
last year before the Olympics. But Rio is not the only state in Brazil
experiencing severe economic stress.
By late December, Minas Gerais had become the third state to declare a
financial emergency, joining Rio de Janeiro and Rio Grande do Sul. For these
three states, deals to privatize water, sanitation and other utilities may be
in the works over the course of 2017. Brazil’s other states aren’t in the
clear: In September, 14 states threatened to declare bankruptcy after Rio de
Janeiro was granted further funding to help overcome its deficits.
Partially privatizing state assets is emerging as the Brazilian government’s
strategy to manage these crippling state debts. The federal government has
specified that any state declaring a financial emergency must privatize a
state-run company within the energy, sanitation or financial sectors in order
to receive further financial assistance.
CEDAE’s privatization would be managed as a concessional contract, with a
private company running the water and sanitation business under government
supervision. Although not full privatization, the move—the first by a Brazilian
state toward privatization—has done little to appease public angst.
Martins, for one, believes that the potential for Rio’s low-income favela
residents to be left without water is a real danger, despite government promises
to maintain a social tariff to keep prices low.
is precedent for this. Alexandre Mendes, a law professor at Rio’s Pontifical
Catholic University, found that the private electricity company Light, which
had been state-owned until 1996, began issuing higher bills to residents in
certain favelas in recent years. The cost proved to be incompatible with their
incomes, leaving several unable to pay for electricity in 2014.
Outside of low-income areas, the move is still widely unpopular. Employees and
members of CEDAE’s labor unions and workers’ syndicates object to the length of
the contract, which would last until 2057 under current arrangements. They also
point to figures from the United Nations that estimate that by 2050, more than
two-thirds of the world’s population will not have access to clean drinking
Given that, water’s value as a commodity is likely to rise steeply.
International investors believe water will follow a similar pattern to oil
during the 20th century. Under existing agreements, Rio’s environmental agency
controls and gives most of the state’s river water to CEDAE, so any buyer would
have significant control over a valuable natural resource.
Like other state-run services, CEDAE’s inefficiency has been a frequent
criticism. Rocinha’s raw sewage waterfalls are a symbol of state neglect for
residents, but also a symbol of the state’s financial impotence for observers.
“We have a really big need to invest more in infrastructure right now in
Brazil, yet this cannot be only done by the government anymore,” says Marcos
Thadeu Abicalil, a senior water and sanitation specialist at the World Bank.
“To reach the U.N.’s Sustainable Development Goals, Brazil really needs to
increase investments to reach targets. Public funds are not sufficient.”
But private management will not guarantee results without proper public
governance. Another controversy around the water sale is CEDAE’s potential
buyer, Aguas do Brasil, which is the largest private sanitation company in the
country. It is a union of four companies, three of which are under
investigation in Brazil’s long-running scandal of high-level political
“The usual argument is that you privatize and you get more efficiency, but
that’s only true in a situation where you have some proper oversight,” Monica
de Bolle, a senior fellow at the Peterson Institute for Economics, explains.
“If you don’t have the oversight and regulatory agencies, then you could have a
worse outcome at the end of the day for the population at large.”
According to de Bolle, Rio’s deal may not solve the state’s sanitation issues
or help plug its financial holes. “There’s no real strategy, there’s just a
push for resolving state financing issues without really thinking through what
the effect on the delivery of public services would be,” she says. “You have to
separate delivery of public services issues from the fiscal problems at the
The initiative to privatize state-owned companies is not just Rio de Janeiro’s
problem; similar talks are underway to privatize Rio Grande do Sul’s water and
sanitation company, Banrisul. Minas Gerais has refused to follow suit, but is
looking to privatize the parking in a busy city district, where some 7,500 cars
While the danger for other states doesn’t look immediate, privatization of
state-owned assets is not exclusively for bankrupt states. Brazil’s government
continued its privatization quest in March, selling off four airports across
the country and reportedly hoping to sell a further six this year.
With low estimated GDP growth for the coming year, plus an increase in public
debt-to-GDP, Brazil’s economic prospects look grim. As numerous states teeter
on the brink of bankruptcy, there could be more deals like Rio’s water sale,
creating other problems and raising costs for Brazilians.
Ciara Long is a freelance journalist based in Rio de Janeiro, Brazil. She
focuses on social mobility, public policy and human rights issues.