the sanitation we want for Brazil

the sanitation we want for Brazil

of the private sector s participation in sanitation

04 PRESENTATION PANORAMA OF THE PRIVATE SECTOR S PARTICIPATION IN SANITATION IN BRAZIL 2018 Presentation THE PANORAMA of the Private Sector s Participation in Sanitation reaches its fifth edition in 2018. When examining the evolution of the last five years in terms of numbers, we will see that there were no big changes in the sector s reality. The total amount of contracts with the private sector is practically the same since that ABCON and SINDCON had started to record data of the private concessionaires in this yearbook. However, before the reader of this Panorama comes to believe that nothing has changed and the following news are bad news, it must be said that some lights begin to light up. A change of thinking has been strengthening, in the sense that there is no more room to postpone the sector s solutions. The federal Government itself has established, through the BNDES, the PPI - Investment Partnerships Program, which aims to privatize the State Sanitation Companies. Sanitation is no longer a distant concern to be discussed alongside other strategic issues for cities, such as housing and urban mobility. In this publication, the ABCON and SINDCON bring valuable opinions about the challenges and opportunities of the current sanitation scenario, as well as the prospects for renewal of models that might accelerate investments in sanitation. ABCON and SINDCON desire that reading the Panorama 2018 is helpful and motivating for new achievements of the sanitation sector and is conducted by a vision committed to the sanitation we desire for all people and that is within our reach.

PANORAMA OF THE PRIVATE SECTOR S PARTICIPATION IN SANITATION IN BRAZIL 2018 EDITORIAL 05 Yes, sanitation is a right for all citizens And it must be taken seriously SANTIAGO CRESPO President of ABCON ALEXANDRE FERREIRA LOPES President of SINDCON ALL CITIZENS are entitled to water and sanitation services. Nobody in the world can disagree with this statement. For more than two decades the private sector has worked to ensure that right through concessions and partnerships established in this period. Symptomatically, the stagnation of the public-private partnership follows the general decrease in investment in the sector. On the one hand the public sector, without ability to allocate the necessary resources. And, on the other hand, the private sector still with political, legal and institutional difficulties to enlarge its contribution Five years were lost and good part of the Brazilian population is still waiting for basic rights - quality water and sewage collection and treatment -, which would benefit the country in health, quality of life and preservation of water resources. We the private sector ought to contribute to change this situation. We put all our knowledge and ability in this effort that can be summarized as follows: provision of adequate services, under regulated contracts, with planned investments according to pre-established goals; and with sustainable tariffs to remunerate the investment and allow everyone to have access to water services and sewage collection and treatment. It is not enough to provide the right to sanitation, but also to enable the access to it. The Panorama 2018 provides a list of examples of how the private companies are fulfilling their commitment to provide the right to sanitation. Despite the legal, political and ideological mishaps, we are proud to have more and more Sanitized Cities - cities that, thanks to the public-private partnership, are on their way to the universalization of services, with great benefits to their communities. These cities, which are examples of how the partnership works, had been chosen by the following criteria: agility in the execution of the contracted goals, inclusion of the population, contract models, efficiency and sustainability of operations, value creation for the municipality and user satisfaction. In a year of general elections, where it is necessary to reinforce the importance of commitment to sanitation among the political class, the discussions on a propositional agenda for the sector starts through the Federal Government and reaches other public spheres (State and Municipal Governments) which already consider the partnership with private enterprises as an alternative to change the current scenario, thus overcoming myths and outdated ideological concepts. Several discussions about the human right to sanitation are happening in 2018, including the realization of the 8th World Water Forum in Brazil. In that way, ABCON and SINDCON are pleased to come out in public not only to bring concrete proposals for development, but also proven cases showing that the complementarity of resources is a viable and necessary alternative to provide the right to sanitation for all in Brazil.

06 PANORAMA OF THE PRIVATE SECTOR S PARTICIPATION IN SANITATION IN BRAZIL 2018 THE SANITATION WE WANT FOR BRAZIL 08 Universalization Challenge 12 Financial Contributions 13 Competitive Equality SANITIZED CITIES 23 Agility to fulfill the contracted goals 27 Inclusion of the population 30 Contract models 33 Efficiency and sustainability of operations 36 Value creation for the municipality 39 User satisfaction INSTITUTIONAL 44 ABCON 44 OUR CHANNELS 45 SINDCON CONCESSIONS FRAMEWORK 59 MEMBERS

THE SANITATION WE WANT FOR BRAZIL A country with worthy conditions of sanitation. Where all can access treated water. THE POLITICAL WILL IS CRUCIAL FOR CHANGE FINANCIAL CONTRIBUTIONS AND MANAGEMENT PRIVATE SECTOR POTENTIAL Where the enormous sewage load - which nowadays is dumped untreated into rivers and seas - is either collected, treated and returned to the supplying system, or moved away in conditions that do not harm the environment. Where there is no spread of diseases because of sewage dumped without treatment. Where the cases of acute diarrhea in children are thing of the past.

08 THE SANITATION WE WANT FOR BRAZIL PANORAMA OF THE PRIVATE SECTOR S PARTICIPATION IN SANITATION IN BRAZIL 2018 UNIVERSALIZATION CHALANGE DESPITE THE LACK OF RESOURCES of the public authorities to transform the sad reality of the sector, there is nowadays an opportunity for Brazil to have the sanitation that it deserves. The society has been complaining for decades, and quality sanitation becomes even more necessary in the face of everything the country experienced in recent years: supplying crises, water stress, spread of diseases, pollution of rivers, seas and lakes. The sanitation figures represent this scenario and show slow advances. About 12 million Brazilians who live in cities have no access to treated water and 70 million have no access to sewage services. In other words, half of the sewage produced in the country is collected and only 44.92% is treated. In total volume it corresponds to approximately 2 million Olympic pools or 4,293 Cantareira systems of sewage dumped into the environment without treatment every year The immobility of the sector only exacerbates this situation. The total investment in sanitation in 2016 was R$11.33 billion, or 0.18% of GDP, which is not relevant within the general investment in the infrastructure sector (electric supply, sanitation, telecommunications, transports airports, railroads, waterways, ports and highways), which is equivalent to 1.68% of the GDP, according to ABDIB (Brazilian Association of Infrastructure and Basic Industries). The necessary average of annual investment for the universalization, according to the Plansab, would be approximately 0.33% of the GDP. UNIVERSALIZATION CHALANGE Sewage Collection and Treatment (%) 100% 0% 49.96% 32.5% Total volume of water consumed 54.25% 38.7% 2007 2012 2016 Volume of sewage collected 57.02% 44.92% Volume of sewage collected and treated In 2016, the total volume of water consumed in Brazil was 9.9 billion m3. Only 44.9% or 4.4 billion m3 were treated. About the sewage, 12.1% or 1.2 billion m3 were collected and disposed with no treatment. There's still 42.9% or 4.25 billion m3 of sewage not collected. Source: SNIS 2007-2016 IN015 Sewage collection index IN046 Treated sewage index to water consumed GDP % X INVESTMENT IN THE SANITATION SECTOR The GDP value in 2016 was R$6,259 billion (IBGE) Investments made in infrastructure in 2016 (ABDIB) Investments made in the Sanitation Sector in 2016 (SNIS, 2016) Goals of the Sanitation Sector (PLANSAB 2016-2033. Value in Dec/16 IPCA) 1.68% of GDP 0.18% of GDP 0.33% of GDP (R$ 105.15 billion) (R$ 11.33 billion) (R$ 20.76 billion)

PANORAMA OF THE PRIVATE SECTOR S PARTICIPATION IN SANITATION IN BRAZIL 2018 THE SANITATION WE WANT FOR BRAZIL 09 SECTOR EVOLUTION X PLANSAB GOAL: A BIG DEFICIT THE COMPLETED INVESTMENT in recent years has been underwhelming. To continue at this rate, the prospects of universalization of sanitation services in Brazil in 2033 - established by Plansab (National Plan of Sanitation) - will bepractically unattainable. With this scenario, 9.4 million people wouldn t be assisted with water services and 44.5 million with sewage services in 2033. NETWORK EXTENSION X PLANSAB GOAL CONSIDERING THE EXTENSION of networks, the country needs 500,000 kilometers of pipelines to meet the universalization goals until 2033. At the current rate, there will be a deficit of approximately 165,000 km in 2033. Achieve this expansion and other essential projects to provide sanitation services to the population represent a major incentive to generate income and jobs. It means wealth and development for Brazil. But it is a challenge that cannot be won individually by the public sector. On the following pages, the Panorama intends to present a great opportunity to use the resources and the know-how of the private sector to place sanitation on track. THE POLITICAL WILL SHALL BE ESSENTIAL FOR THE CHANGE THE POLITICAL will is not always in tune with the popular will. With regard to the sanitation, during much time this principle apparently prevailed in the public context (despite the initiatives as the Sanitation Law, of 2007, and its currently necessary UNIVERSALIZATION CHALLENGE Water supply of urban population (%) 100% Sewage supply of urban population (%) 94.20% 93.20% 92.96% 56.06% 59.74% 49.10% 2007 2012 2016 0% 2007 2012 2016 Source: SNIS 2007-2016 (IN023 Index of urban water service and IN024 - Index of urban sewage service referred to the municipalities with water service)

10 THE SANITATION WE WANT FOR BRAZIL PANORAMA OF THE PRIVATE SECTOR S PARTICIPATION IN SANITATION IN BRAZIL 2018 NETWORK EXTENSION of water distribution and sewage collection x PLANSAB Goal (km x 1000)de distribuição de água e coleta de esgoto x Meta PLANSAB (km x 1000) WATER km x 1000 Projections for 2033 2033 PLANSAB Goal 838.000 km of network 626 177 35 SEWAGE km x 1000 Projections for 2033 2033 PLANSAB Goal 605.000 km of network 303 172 130 Network extension in 2016 PLANSAB Goal - 2033: Network extension built in the current rate Network extension not built in the current rate POPULATION ASSISTED by water and sewage services x PLANSAB Goals (millions of inhabitants) WATER Projections for 2033 2033 PLANSAB Goal 223.1 million people served 166,6 47,1 9,4 SEWAGE Projections for 2033 2033 PLANSAB Goal 207.3 million people served 103,8 PLANSAB Goal 2033: 59,0 44,5 Population assisted in 2016 Population included with the current network extension rate Population NOT included with the current network extension rate Source: SNIS 2016. Linear projection based on the evolution of the assisted population between 2004-2016. Population to be assisted in 2033, ABCON calculation based on the projection of the total population according to IBGE.

PANORAMA OF THE PRIVATE SECTOR S PARTICIPATION IN SANITATION IN BRAZIL 2018 THE SANITATION WE WANT FOR BRAZIL 11 Alexandre Baldy Martha Seillier Renan Filho update which is in transaction). It must be said that the legal enforcement of the Municipal Sanitation Plans, as provided for by Law 11,445/07, has been postponed year after year. The last measured along these lines has postponed the completion of the PMSBs for December of 2019. The good news is that the leading political authorities are fortunately awakening to the fact that sanitation must be a national priority. The Minister of Cities, Alexander Baldy, is leading the common movement of a reform proposal to expand the partnership of the private sector in sanitation services. We are completing the legal device that aims to encourage the participation of the private enterprise in this sector. Moreover, we stimulate the actions of the Public Consortium and the new technologies, in an effort to maximize results and reduce costs, involving the federated entities in the search for drastically reduce the absence of sanitation services in all the country, says the minister. The Chief of Staff for the Presidency Office, Martha Seillier, agrees with the need for reform. Brazil, of continental dimensions, is among the ten largest economies in the world when considering GDP. However, when we observe the sanitation services provided to the population, we occupy the 120th position, she says. This encourages the Federal Government to exercise its Federative coordination role for sanitation and propose changes that might contemplate the enormous challenges of the sector, including the current scenario of public cost reduction. Such a reality requires the recognition of the need for greater private sector participation in the provision of these services. Together, the public sector and the private enterprise need to join forces to provide the population with decent service conditions, quality services and sliding scale tariff, Martha emphasizes. ALAGOAS SEARCHES FOR NEW MODELS AND THE PARTNERSHIP WITH THE PRIVATE SECTOR FOR THE UNIVERSALIZATION OF SERVICES The State of Alagoas is investing to achieve the universalization of water and sewage services. Partnerships with the private sector are among the solutions adopted, as reported by the Governor Renan Filho in this exclusive interview to the Panorama. Why sanitation is a major concern of your Government? Sanitation is a basic right of all people. Regardless of the region and social segment, it is necessary that all people have access to sanitation, potable water and sewage treatment. It is an indispensable requirement for the quality of life and dignity of decent housing. Sanitation is an essential condition for citizenship. It is the responsibility of the Government, the Constitution: health is everyone s right and providing it is duty of the State. Will the partnership between the Government and the private sector be able to gain strength to solve the sanitation problems? Yes, by the way, this partnership has been growing in Alagoas State. The private sector partnerships are very welcome, and must be made under the watchful

12 THE SANITATION WE WANT FOR BRAZIL PANORAMA OF THE PRIVATE SECTOR S PARTICIPATION IN SANITATION IN BRAZIL 2018 eye of the society, through the organisms of internal and external control. They increase investments in diverse areas of public interest, including in sanitation. The main virtue of these partnerships is that they, if well conducted, facilitate the process and speed up solutions to the demands of the population. Alagoas has confirmed participation in the Sanitation PPI promoted by BNDES. What is the expectation of the Government with regard to this process? The Government of Alagoas expects these studies to be able to point out viable solutions to the main objective: universalize the services of water and sewage in the State to be accessible to the entire population. This is the target. So, the way to achieve this goal is to provide cheaper financing options and achieve a greater volume of financial contributions to these activities. Even before the PPI, the Alagoas State entered into a partnership to treat part of the sewage of the Capital, Maceió. Why the state decided to invest in this model? The idea is to advance in the funding model. Historically, the sanitation works are made with resources of the Federal Government and financial contribution of the State. This model seems to be outdated and has obvious disadvantages, especially in the street or village that waits for the sanitation works. It delays the attendance to the populations in the water supply and, mainly, in the sewage system works. This has led to serious issues in structural sanitation sectors. This model is also depleted by another important reason which is in sight for all the managers: the limited capacity of the Federal Government to make the necessary investments. Then the State has sought alternatives to optimize the attendance to the population, which needs and has the right to the sanitation. Partnerships with the private sector are the best alternatives. The Federal Government has signaled for the privatization of the sanitation sector. Do you believe that these paths will bring benefits to the population? Sanitation companies must be strengthened because they are the best alternative for the universalization of these services. Sanitation is an area of strong social content, let us not forget. This does not exclude, however, the participation of the private sector as an investor and partner in the process. THE CONTRIBUTION OF RESOURCES AND THE PRIVATE SECTOR S MANAGEMENT WILL MAKE A DIFFERENCE THE MYTHS that still affect the private sector in sanitation, as high tariffs and interest only in large cities, are falling to the ground. ThePanorama itself has contested with figures the erroneous affirmations caused by outdated ideologies, that still surrounds the private sanitation sector. As we can observe in the following charts, the figures and performances of the private sector in sanitation show that this sector has perfect conditions to cooperate with the Brazilian State in sanitation solutions. The myths that still affect the private sector in sanitation, as high tariffs and interest only in large cities, are falling to the ground. ThePanorama itself has contested with figures the erroneous affirmations caused by outdated ideologies, that still surrounds the private sanitation sector. As we can observe in the following charts, the figures and performances of the private sector in sanitation show that this sector has perfect conditions to cooperate with the Brazilian State in sanitation solutions. TARIFA MÉDIA PRATICADA 3.00 3.20 [R$/m 3 ] 2.98 2.96 2.86 2.70 2.75 2.63 Private Companies 2.62 2.53 State Companies 2.49 National Average 2.37 2.45 2.28 2.30 2.27 2.15 2.22 2.09 2.10 1.92 2.06 2.14 1.77 1.84 2.03 1.95 1.69 1.87 1.65 1.75 1.58 1.63 1.42 1.47 1.34 1.33 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 3.20 3.43 Source: SNIS 2003-2016 (IN004 - Average Tariff Charged) 3.75 3.64 3.36

PANORAMA OF THE PRIVATE SECTOR S PARTICIPATION IN SANITATION IN BRAZIL 2018 THE SANITATION WE WANT FOR BRAZIL 13 MUNICIPALITIES WITH THE PRIVATE SECTOR S PARTICIPATION* by population size 58% of concessions are in municipalities with less than 20,000 inhabitants 42% of the concessions are in municipalities with more than 20,000 inhabitants [number of inhabitants] up to 5,000 up to 10,000 up to 20,000 up to 50,000 up to 100,000 up to 500,000 >500,000 13% 18% 14% 7% 15% 6% 27% Source: SPRIS 2018 * In contracts involving two or more municipalities, it was considered the aggregate population. COMPETITIVE EQUALITY IS REQUIRED FOR THE EXPANSION OF INVESTMENTS AS PROVIDED by the Federal Constitution, the ownership of the sanitation services is allocated to the municipal sphere, since it refers to local interest. Therefore, a possibility would be to provide the population with the essential water and sewage services on its own, through independent governmental agencies or Municipal companies. It is estimated that 27% of the Brazilian municipalities adopt this solution. However, the great majority of the cities - about 71% - delegate the rendering of services to the State sanitation companies. And many of these programme contracts are renewed automatically, without targets, investments or tariff structure revisions. A review of the legal framework - which allows the municipality to carry out a public call whenever a programme contract come to an end - would be a transparent and fair measure offering the population possibly better alternatives, both the tariffs as well as the provision of quality services and larger investments in networks expansion and systems maintenance. That way, other companies not only private, but also public companies could submit proposals to make investments in the municipalities in more favorable conditions. Today, only 6% of the cities count on the private participation in its different contract types (full concessions, partial concessions, PPP s, management contracts, etc.). And, with financial health, these companies have achieved very positive results. Why not review that old model and let the private capital - with its technical and management capacity - compete to provide the public sanitation services competently? The free competition should not be confused with the idea that the private sector operates only for profit. In fact, even the main sanitation State enterprises persecute the positive financial result; therefore they know that the company s financial health allows the investments maintenance. Clear rules and effective regulation to attract the private sector to the sanitation area are welcome and do not mean regression or destructuring. THERE ARE FEW SANITIZED CITIES, BUT THEY CAN BECOME A REALITY ACROSS THE COUNTRY. IN 2015, the ABCON defined some premises to identify cities that are committed to the sanitation advancement in their domains, and has called them as Sanitized Cities. Since then, the Panorama has highlighted some of these cities among the municipalities that rely on the partnership of the private sector. They all constitute good examples, which deserve to be known. But still there are few municipalities,

14 THE SANITATION WE WANT FOR BRAZIL PANORAMA OF THE PRIVATE SECTOR S PARTICIPATION IN SANITATION IN BRAZIL 2018 PRESENCE OF PRIVATE SECTOR in the municipalities Source: SPRIS 2018 01 04 38 12 125 03 01 01 15 11 322 Municipalities 01 09 04 53 01 18 20 03 31 Million people benefited 02

PANORAMA OF THE PRIVATE SECTOR S PARTICIPATION IN SANITATION IN BRAZIL 2018 THE SANITATION WE WANT FOR BRAZIL 15 given the territorial extension of the country. A survey promoted by Abes (Brazilian Association of Sanitary and Environmental Engineering), and presented in the Abes Ranking of the Sanitation Universalization Symposium, in January 2018, confirmed this trend. The study reveals that the great majority of Municipalities are far from achieving the universalization of sanitation services. Of the 231 cities included in the survey, 176 (76%) are still in the so called first steps towards universalization. Other 41 (18%) were classified as having a commitment to universalization, and only 6%, or 14 municipalities, managed to reach the stage Towards Universalization. It is important to note that half of those successful cities rely on the partnership of the private sector, whether in full or partial concessions or PPP s. Niterói, Araçatuba, Limeira and Votorantim (full concessions), Jundiaí (partial sewage concession), Piracicaba (sewage PPP) and São José dos Campos (lease of assets/sewage) had been recognized by good performance in water supply and sewage treatment services as well as collection and disposal of solid waste. The President of the National Front of Mayors and Mayor of Campinas, Jonas Donizetti, emphasizes that the future of the cities depends on the universalization of the sanitation services. We have to face the sanitation as an essential issue to the population, since public health goes through the universalization of access to potable water and sewage collection and treatment. Progress on these issues is the duty of the Governing Authorities he says. The Mayor believes that public-private partnerships and concessions are investment alternatives in the municipalities, especially in this time of crisis and increased responsibilities without the appropriate revenue sources. If the sanitation is also in this process, we will have progress and, certainly, we will raise the water coverage and access to sewage collection in the municipalities, he adds. Catarina de Albuquerque - executive president of the SWA organization (Sanitation and Water for All) and UN special former-reporter for human right and drinking water - says that everyone should engage to solve the sanitation problem. No one will be able to deal with this issue separately. Governments cannot wash their hands and need to count on the partnership of the private sector even in remote and poor areas, whatever the model. The partnerships need to be lined up with the human right to water and sanitation, she says. With the public-private partnership, the universalization Jonas Donizetti Catarina de Albuquerque ceases to be a distant dream. We will be able to have more Sanitized Cities in the country. A PORTRAIT OF THE PRIVATE SECTOR POTENTIAL IN SANITATION THE SPRIS (Private Sector Information System of Sanitation) is updated annually, with data collected among the sanitation private concessionaires operating in the country. Through the SPRIS it is possible to have a proper view of the participation of the private sector; therefore not all the contracts are evidenced in the National Sanitation Information System - SNIS. It must be remembered that, according to the contract model, a significant part of the private sector s statistics compose the figures of its partners: the local and regional public providers.

16 THE SANITATION WE WANT FOR BRAZIL PANORAMA OF THE PRIVATE SECTOR S PARTICIPATION IN SANITATION IN BRAZIL 2018 INVESTMENTS OF THE PRIVATE SECTOR IN SANITATION (R$) 37.6 BILLION in contracts with the private sector signed between 1994 and 2018 Source: SPRIS 2018Fonte: SPRIS 2018 12.8 billion provided for in the next 5 years 2021 2022 11.5 billion by the end of the contracts According to the survey carried through for the Panorama 2018, although remain in only 6% of the cities, the private sector is responsible for 20% of investment in sanitation. In total, the private sector has R$ 37.6 billion planned investments in contracts, of which R$ 13.3 billion have already been made. With the start of operation of the subconcession of Teresina City, a new State, Piauí, began to be provided by private concessions, which today are present in 322 municipalities, with 31 million people benefited. The sector has 266 established contracts, in different modalities. THINK ABOUT THE FUTURE? NOT! THE TIME IS NOW 1994 2017 2016 13.3 billion invested THE FIGURES and questions that deserve a reflection are presented in this Panorama. Brazil needs to make progress in the field of sanitation, so that the lack of potable water and treated sewage does not affect more, in a chronic way, the health and well-being of the population. The private sector demonstrates its potential to contribute in a scenario where the public resources are insufficient to cover the huge volume of investment that the sanitation needs. Stimulate the partnership between the public and the private is not the only solution, but it is a solution that can no longer be postponed. PRIVATE MUNICIPALITIES X PRIVATE INVESTMENT Source: SPRIS 2018 5570 Municipalities in Brazil R$11 billion invested in the sanitation sector in 2016 PRIVATE 6% 20% SECTOR

PANORAMA OF THE PRIVATE SECTOR S PARTICIPATION IN SANITATION IN BRAZIL 2018 THE SANITATION WE WANT FOR BRAZIL 17 INVESTMENTS MADE in the sanitation sector 2007-2016* [R$ billion] 20.91 21.23 21.66 22.25 14.9 13.87 13.42 13.64 13.45 12.83 12.20 11.70 9.58 7.68 0.68 (8%) 0.73 (8%) 0.85 (7%) 0.73 (5%) 0.65 (5%) 1.32 (10%) 2.34 (17%) 3.10 (20%) 2.64 (20%) 2.40 (20%) 2007 2008 2009 2011 2012 2013 2014 2015 2010 2016 2017-2033 PLANSAB Goal (2014-2033)** Total of the Sector (SNIS) Private Sector (SPRIS) *Values updated by the IPCA in Dec. 2017. Source: BACEN **The need for investment to reach the PLANSAB goal is R$418.2 billion (in December 2017, according to IPCA), which should be distributed between 2014 and 2033 for the universalization of the water and sewage services. This value was R$20.9 billion/year. Considering the investment from 2014 to 2016, the value was redistributed.

18 THE SANITATION WE WANT FOR BRAZIL PANORAMA OF THE PRIVATE SECTOR S PARTICIPATION IN SANITATION IN BRAZIL 2018 PARTICIPATION OF SANITATION SERVICE PROVIDERS in Brazilian municipalities Fonte: SNIS 2016 e SPRIS 2018 27% Local Providers and Public Microrregionais Includes Local Authorities, direct Public Administration, Society of Mixed Economy with Public Administration, Public Enterprises and Social Organizations. 71% Regional Public Providers 24 companies: Local Authorities, Public Enterprises and Mixed Economy Society. Includes all regional providers (State Comapny), except Saneatins/TO. 6% [ 322 municipalities ] Private Providers Includes regional, microrregionais and local providers of all contract models. Not cumulative values. If we consider only the full concessions, the private participation represents approximately 2% of the municipalities. The remaining 4% are for municipalities with the presence of public and private service providers at the same time.

PANORAMA OF THE PRIVATE SECTOR S PARTICIPATION IN SANITATION IN BRAZIL 2018 THE SANITATION WE WANT FOR BRAZIL CONTRACT MODELS with the private sector Source: SPRIS 2018 Full Concession - 144 (149 municipalities) 266 contracts until 2016 Other - 78 (78 municipalities) Partial Concession - 23 (21 municipalities) Subconcession - 1 (1 municipality) Lease of assets - 3 (4 municipalities) PPPs - 16 (66 municipalities) Subdelegation 1 (3 municipalities) 19

20 THE SANITATION WE WANT FOR BRAZIL PANORAMA OF THE PRIVATE SECTOR S PARTICIPATION IN SANITATION IN BRAZIL 2018 PRIVATE CONCESSIONS Population Assisted Investment R$ million STATE Municipalities Contracts Water Sewage Total Planned in Contracts [R$ million] Made Expected in 2016 until 2016 2017 to 2021 ALAGOAS 11 2 665,911 60,000 665,911 424.98 6.84 193.43 169.55 AMAZONAS 1 1 1,489,753 234,480 1,489,753 3,672.24 53.25 629.44 846.57 BAHIA 1 1 0 1,100,000 1,100,000 261.13 0.00 259.33 0.00 ESPÍRITO SANTO 3 3 206,108 728,927 741,772 618.00 5.66 158.16 616.40 GOIÁS 4 1 0 923,904 923,904 951.01 93.25 351.44 1,231.16 MARANHÃO 3 3 318,697 90,429 318,697 657.00 47.49 63.99 372.83 MATO GROSSO 38 38 1,414,886 563,741 1,427,486 3,695.77 188.63 969.07 1,112.56 MATO GROSSO DO SUL 1 1 862,427 672,537 862,427 1,632.20 117.19 997.75 254.88 MINAS GERAIS 18 5 1,461,874 131,327 1,461,874 739.99 35.65 674.80 63.76 PARÁ 12 12 214,799 6,800 234,799 524.87 20.56 94.40 112.92 PARANÁ 1 1 146,641 109,981 146,641 464.08 13.12 242.29 117.90 PERNAMBUCO 15 1 0 3,965,548 3,965,548 2,954.94 120.87 445.82 1,086.80 PIAUÍ 1 1 825,015 168,521 825,015 1,700.00 0.00 0.00 650.00 RIO DE JANEIRO 20 14 2,175,358 3,470,999 3,864,254 7,339.71 337.57 3,140.34 1,945.74 RIO GRANDE DO SUL 2 2 186,066 113,456 186,066 270.62 19.13 148.74 97.79 RONDÔNIA 4 4 188,568 0 188,568 437.21 5.03 24.03 153.57 SANTA CATARINA 9 10 393,773 170,852 524,924 2,165.40 100.97 413.04 834.86 SÃO PAULO 53 41 8,170,508 4,239,418 10,962,419 7,616.06 1,047.23 3,956.54 2,670.85 TOCANTINS 125 125 1,209,635 336,433 1,209,635 1,529.02 110.62 602.32 455.95 322 266 19,930,019 17,087,353 31,099,693 37,654 2,323 13,365 12,794

SANITIZED CITIES Sanitized Cities What distinguishes the private participation in sanitation? AGILITY IN THE EXECUTION OF CONTRACTED GOALS INCLUSION OF THE POPULATION CONTRACT MODELS EFFICIENCY AND SUSTAINABILITY OF OPERATIONS VALUE CREATION FOR THE MUNICIPALITY USER SATISFACTION What distinguishes the private concession? On which criteria the private sanitation management stands out? Which are its benefits? To answer these questions, the Panorama have chosen in this edition relevant cases that can be considered good examples of the private sector performance in sanitation in Brazil. The examples show the public-private efforts to accelerate the process of universalization and improve de sector services.

22 SANITIZED CITIES PANORAMA OF THE PRIVATE SECTOR S PARTICIPATION IN SANITATION IN BRAZIL 2018 SANITIZED CITIES are those that have services governance, transparency and guarantee of the users rights, fair tariffs, planned investment, environment and people care. In the previous Panorama editions we brought examples of cities that follow this concept and seek to comply with all these premises. This year we present some themes, below described, that demonstrate the potential of the private sector to help all the Brazilian cities to become Sanitized Cities. AGILITY TO FULFILL THE CONTRACTED GOALS EFFICIENCY AND SUSTAINABILITY OF OPERATIONS An outstanding characteristic of the private concession is the quick execution of projects and works that increase the coverage, improvement in the quality of the services, reduction of losses, productivity, among others issues. The contracts established with the private sector are based on commitment with investments, performance and efficiency in the use of resources. Technological innovation and sustainability are the operation s targets, as well as the most positive environmental impact. INCLUSION OF THE OPULATION The presence of the private operation in a municipality often represents the opportunity to expand the coverage of sanitation services in regions not assisted, also with alternative solutions for poor, isolated or irregular communities, special tariffs and other forms of inclusion in the public service system. VALUE CREATION FOR THE MUNICIPALITY By enabling the sanitation advancement, the investments provided generate significant impacts on other sectors, such as water resources, public health, tourism, education, industrial incentive policies, among others, directly benefiting the population. CONTRACT MODELS USER SATISFACTION The diversity of partnership types with the private sector results in different contract models, all with legal and regulatory basis. One of the great advantages of concession contracts is the transparency guaranteed by the establishment of goals and by appropriate regulation, from which the social control is precisely exercised by the granting authority as well as by the civil society involved. One of the priorities of the concessionaires is to maintain high levels of satisfaction. It is important to remember that the extension of coverage, good attendance, accessibility and the appropriate charging system (a result of good management) impact positively on public opinion.

24 SANITIZED CITIES PANORAMA OF THE PRIVATE SECTOR S PARTICIPATION IN SANITATION IN BRAZIL 2018 AGILITY TO FULFILL THE GOALS ACCELERATING INVESTMENT, management and focus for solutions to be quickly implanted are part of the private companies culture, and it would not change in the sanitation sector. Not rare, the concessionaires overcome in some aspects, often anticipating the contracted goals. A recent example occurred in the small municipality of SÃO SEBASTIÃO DA GRAMA, in São Paulo State. In October, 2016, the company Águas de São Sebastião da Grama started the operation in the city carrying through, immediately, the complete reform of the Water Treatment Plant (WTP), substituting the filter materials, laboratory equipment and renovating the treated water pumping station. Still within the first year of concession, the concessionaire performed the Sewage Treatment Plant works showing agility and commitment to the goals and deadlines. The contract period for delivery was set for 24 months. Once started the work, the concessionaire has provided the trunk sewer, collector-trunk, interceptor systems, pumping station, final discharger and the STP, which are necessary for the execution of the scheduled works. The concessionaire has overcome and recently inaugurated the system, anticipating in seven months the contractual completion date. Contractual term: 24 months Works completion date: 17 months SÃO SEBASTIÃO DA GRAMA/SP Population: 12,500 Water Coverage: 100% Sewage Treatment: 98% With that, the municipality becomes part of the small list of sanitized cities in Brazil, with 100% of the population properly assisted with drinking water and the entire town served with sewage collection and treatment. PARÁ DE MINAS/MG Population: 94,000 Water supply: 98.7% Sewage Collection and Treatment: 97.4% EMPTY TAP NEVER MORE Contractual term: 24 months Works completion date: 5 months TAKE ON CHALLENGES and responsibilities to overcome the goals was also the principle adopted by the concessionaire Águas de Pará de Minas, who acts in an important mining center in Minas Gerais State, the city of PARÁ DE MINAS, about 80 km from the Capital, Belo Horizonte. In just five months, the concessionaire has definitely solved the chronic problem of water shortage in the city. The conquest is the fruit of the concessionaire s work, involving the construction of a pipeline network to solve the main water problems of the municipality. Pará de Minas was suffering with severe lack of water problem. The city has declared a state of public emergency due to the water crisis. The peak of the collapse occurred in the years 2013 and 2014, when the population of several neighborhoods was without water for almost a month several times. By taking on the services, the concessionaire soon began the construction of 28 kilometers of pipeline, from the river Paraopeba, in the region of the Córrego do Barro district, to the WTP located in the Nossa Senhora das Graças neighborhood. With the completion of the works, the water shortage risk was definitively moved away. Today, the water shortage is no longer a concern for the municipality. The city counts with 98.7% of water supply and 97.4% of sewage treatment and collection. Pará de Minas is a reference for many other regions.

PANORAMA OF THE PRIVATE SECTOR S PARTICIPATION IN SANITATION IN BRAZIL 2018 SANITIZED CITIES 25 AGILITY TO FULFILL THE GOALS OLYMPIC GOAL FULFILLED FROM REGIONAL SOLUTIONS to works with international repercussion, the private sector has contributed in several ways to the Brazilian sanitation sector advance. The concessionaire Zona Oeste Mais Saneamento, hired by the Municipal Government, was responsible for the works of the 2016 Olympic Games, held in Rio de Janeiro. For the concession contract, the completion date of the Sewage Treatment Plant (STP) was scheduled for May, 2017, but the works move forward to assist the Deodoro Olympic Cluster through investments of Zona Oeste Mais Saneamento (WEST ZONE OF RIO DE JANEIRO). In May of 2016, the concessionaire delivered the new STP, not only aiming at the Olympic Games, but also to benefit the population. The plant in Deodoro treats the sewage of the Bangu, Deodoro, Realengo, Padre Miguel, Magalhães Bastos, Jardim Sulacap and Vila Militar neighborhoods, all located in the discharge basin of the Guanabara Bay. With capacity for 430,000 people, the STP is the largest one within the sanitation concession of the Planning Area 5 (AP-5), which covers 22 neighborhoods (48% of the municipal territory). The new plant required investments of R$120 million. The unit replaces the one which assisted 20,000 people until 2012, when the private concessionaire took over the operation of the Sewage System of the PA-5. WEST REGION OF RIO DE JANEIRO (RJ) Population: 1,800,000 Sewage Collection and Treatment 44% of the population Contractual term established: May/2017 Works completion date: May/2016 In five years of contract, R$450 million have already been invested in the construction of 256 km of new sewage networks, in addition to the STP Deodoro. The Zona Oeste Mais Saneamento have reactivated 16 other sewage treatment plants and constructed 30,000 new connections to the collection system. In 2012, only 5% of the population was served with sewage collection and treatment. This index has risen to 44% in 2017. ANDRADINA (SP) Population: 55,334 Water supply: 100% Sewage Treatment: 100% BLUE GREEN SEAL IS KEPT Contractual term: 30 years Works completion date: 7 years THE POSITIVE BALANCE of 2017 confirms the commitment and agility of the private concession in the sanitation sector. The concessionaire Águas Andradina started operations in the city of ANDRADINA (SP) in October, 2010. At the beginning of the concession, only 8% of the sewage was collected and treated and most was disposed in open air. The system of the municipality presented some problems such as leaks and treatment inefficiencies. There was a huge need to perform the sanitation works and it required prioritization by the concession. With particular attention to the sewage system, the first work performed for the sewage treatment service universalization was the recovery and modernization of the Sewage Treatment Plant (STP) Pereira Jordão. The recovery of the sewage system which covers collection and treatment was the main milestone of the concessionaire s work through these years. The works, which included the revitalization of other STPs and the concomitant improvement in service efficiency, contributed for the municipality to continue with the Green Blue Seal, whose purpose is to measure and support the effectiveness of environmental management with the decentralization and enhancement of the environmental agenda in the municipalities. The company also invested in the improvement of the water supply system, with an intensive recovery and operation program of 39 wells, reservoirs and pumping stations.

26 SANITIZED CITIES PANORAMA OF THE PRIVATE SECTOR S PARTICIPATION IN SANITATION IN BRAZIL 2018 AGILITY TO FULFILL THE GOALS TRANSFORMING REALITIES THE MUNICIPALITY OF PARAIBUNA presented a critical situation, with serious water shortage problems due to the precarious conditions of the water collection system, which needed maintenance and renovations. The WTP needs modernization and urgent adjustments because of its 50 years of uninterrupted operation without any maintenance. Other bottlenecks were: default above 35%, and physical and commercial losses of water above 60%. PARAIBUNA (SP) População: 13.375 Abastecimento de Água: 98% Prazo contratual estabelecido: 30 anos Prazo em que as obras foram entregues: 3 anos The scenario changed with the full concession of water, sewage collection and treatment services. The Companhia de Água e Esgoto de Paraibuna (CAEPA) took over the services in June, 2015. The reform of the water collection system and the raw and treated water pumping station were included, as well as the deployment and replacement of the water distribution network, the telemetry and the correct dosage of chemicals, resulting in improvements in the water quality. The Concessionaire s challenges remain, but the situation in Paraibuna is no longer the same as three years ago. The population is not currently affected by lack of water.

28 SANITIZED CITIES PANORAMA OF THE PRIVATE SECTOR S PARTICIPATION IN SANITATION IN BRAZIL 2018 INCLUSION OF THE POPULATION NEW REALITY THREE YEARS AGO BURITIS, a small town of Rondônia State, was no longer a city literally without sanitation and became a State reference in human development and, for the first time, a reference in water and sewage treatment - a success story considering the reality of that State. SANITATION AND HEALTH URUGUAIANA (RS) Population: 129,784 Sewage Treatment; 91% BURITIS (RO) Population: 39,000 Contractual term: 30 years Contract Model: Full Concession Contractual term: 30 years Contract Model: Full Concession The concessionaire Águas de Buritis took over the sanitation services in April, 2015, and 33% of the population already has access to treated and quality water. The goal of the company is to provide, until 2020, water collection and sewage collection and treatment for 50% of the population. Buritis has been developing fast and the Aegea unit in the municipality has the support of the local population to accomplish these positive changes. Besides providing access to water and sewage systems a basic right - the concessionaire has implemented tools to work together with the local community, through the public authorities, the press, schools and community leaders. Some of these actions as educational communication campaigns and regular meetings with leaders allow the concessionaire to understand the needs of the municipality, among others. The community inclusion and participation will be the history of the State. CIIT IS TRUE. Sanitized cities face fewer problems of contamination and disease. But that s not how the municipality of URUGUAIANA (RS) has lived for years. With a population of 129,784 inhabitants, the city had 108,000 inhabitants without sewage collection and treatment service. Seven years later, there is another reality. The partnership with BRK Ambiental Uruguaiana has transformed the city into one of the main cities of Rio Grande do Sul to offer sanitation, in such a short space of time. A significant reduction of diseases related to lack of sanitation, especially in peripheral regions, was reported. In addition, the reduction of pests and insects in many neighborhoods and, mainly the end of the open air sewage in much part of the city, made all the difference in the population s quality of life. The concessionaire aims to universalize both services until June, 2019. In addition to the contractual services provided, the BRK Uruguaiana offers teachers and public servers qualification activities regarding the sanitation, benefiting more than 7,000 people per year. The company also promotes regular Plumbers Workshops, which consists of a free training, open to the community, offering training and knowledge of water and sewage systems. Another fact of the concessionaire, which includes the population, was the partnership with the Federal University of Pampa (UNIPAMPA), for educational activities.

PANORAMA OF THE PRIVATE SECTOR S PARTICIPATION IN SANITATION IN BRAZIL 2018 SANITIZED CITIES 29 INCLUSION OF THE POPULATION NO MORE SEWAGE INTO THE ITAJAÍ-AÇU RIVER! BLUMENAU is one of the most important tourist cities of Brazil. Winter destination and also an important economic center, the city s sewage was disposed in cesspits, filters or into the Itajaí-Açu River some years ago. BLUMENAU (SC) Population: 348,513 Sewage Treatment: 42% INVESTMENTS FOR WATER SUPPLY AND SUSTAINABILITY WITH 2.1 MILLION INHABITANTS, MANAUS With 2.1 million inhabitants, Manaus is the seventh largest city in the country, and since the beginning of this century it goes through an accelerated process of population growth. In 2000, the capital of Amazon had 43% less inhabitants. All this expansion reflects the impact of the sanitation in the city, which is on the edge of the largest forest in the world, with huge biological diversity and invaluable environmental value. Before the concession of sanitation services to the private sector, in 2000, the situation was unsustainable. The State sanitation company of Amazon (COSAMA) registered an operational damage of R$50 million that year. The water network coverage was 76%, and the sewage network coverage was only 3%. The public notice set the target for water coverage (91%) and sewage coverage (11%). Default was about 70%. Reports recorded 25,000 complaints of water shortage per month. Contractual term: 45 years With the arrival of the BRK Ambiental Blumenau, the sewage system has reached the rate of 42%. The great challenge of the company is to provide services to the whole population up to 2021, reaching 100%. The concessionaire brings techniques that require skilled labor and took the initiative to offer the course called Plumbers Workshop, offering the population a new opportunity of training and work. Blumenau also received a preparatory communication work, involvement and awareness about the importance of the proper sewage disposal from the residences. In addition to service programs to the population, such as The Client is Mine, where a company s team visits, door to door, all residents which will be impacted by the works. There is salso the Open Door programme which includes guided visits with the people interested in knowing the process of sewage collection and treatment. MANAUS (AM) Water coverage: 88,24% Population assisted before the concession (2000): 76% Population assisted in 2017: 2,05 million inhabitants (98% of the total population) In the first five years of operation, the private concessionaire concentrated efforts on supply regularization and water quality improvement, with the deployment of a new treatment plant and the modernization of the WTP in the city. The investment from 2000 to 2005 was R$ 300 million. In 2007, the concession was managed by a new holding company. At the time, the operation included 600,000 people assisted by the water supply system, serving 95% of the city with the water network coverage. The investment reached R$ 700 million in this phase.

PANORAMA OF THE PRIVATE SECTOR S PARTICIPATION IN SANITATION IN BRAZIL 2018 SANITIZED CITIES 31 CONTRACT MODELS ADVANTAGEOUS PARTNERSHIPS MACEIÓ (AL) Population: 300,000 Sewage collection and treatment: 33% da área de capital PPP OF UNIVERSALIZATION EXPECTED TO OCCUR in ten years, the universalization of sanitation in the city of VILA VELHA (ES) involves the implementation of new connections and sewage collecting networks, which will benefit 470,000 people. The works take place through public-private partnership (PPP) between the Cesan and the Vila Velha Ambiental concessionaire, established in January, 2017. The agreement delegates to the concessionaire the management for expansion, maintenance and operation of the Vila Velha s sewage system, as well as the provision of support services to the commercial management of Cesan in the municipality. The main goal is to universalize the system in a decade, offering a 95% sewage network coverage (currently, only 56% of the city has sewage system). Contractual term: 30 years Contract Model: Sewage PPP VILA VELHA (ES) Population assisted: 486,388 Sewage Treatment: from the current 50% to 95% THE SANITATION COMPANY OF ALAGOAS (Casal) signed a PPP Sewage Contract with the Concessionaire Saneamento Alto Maceió (Sanama), in 2014, which provides for the implementation, operation and maintenance of the sewage system in the uptown of Maceió (approximately 33% of the capital area) and the shared management of the commercial works (reading, revenue, supervision, collection, outage and reconnection). Among the differential aspects of the contract, there are four consideration installments which remunerate it: investment, changeable costs of sewage treatment, costs of the commercial management and costs of the collecting network maintenance. The payment of considerations is limited to the sewage collection in the PPP area. Over the 30 years of partnership, about 300,000 people will be benefited. With both the contract as the lease of assets in deployment, the Casal intends to achieve around 75% of coverage in the capital within four years. Contractual term: 30 years Contract Model: Sewage PPP In the first two years of contract, the concessionaire will activate 13,000 connections, and it plans to replace about 60,000 hydrometers, in addition to performing preventive and corrective maintenance of the system. Also in this period, the Cesan will extend the STPs Araçás and Ulysses Guimarães, so that the concessionaire can start the collection network expansion works.