Operation starts with an increase in works, voluntary severance program, and negotiations with cities
08/18/2023
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Leandro Marin — Foto: Nilani Goettems/Valor
Aegea begins to take its first restructuring actions at Corsan (Companhia Riograndense de Saneamento), which was effectively privatized in July after months of legal disputes as well as controversy with the accounting court. In addition to accelerating investments, which should reach R$1.5 billion per year by 2024, the company has launched a voluntary severance program for employees and started negotiations with dozens of municipalities that still need to regularize their contracts.
“We started bringing our operating model to improve efficiency and focus on cost reduction,” said Leandro Marin, Aegea’s vice president and head of operations for Brazil’s southern region.
Aegea leads the consortium that, together with Perfin and Kinea, acquired Corsan. The privatization auction was held in December 2022. The group was the only one interested and took the state-owned company from the state of Rio Grande do Sul for the minimum bid of R$4.15 billion. The amount was disbursed only in July when the contract was signed. The completion of the transaction was delayed by about three months due to court injunctions obtained by the workers’ union and a controversy with the accounting court over the value of the sale.
A measure taken to clear the signing of the contract was the labor agreement that guaranteed 18 months of stability to the 5,600 employees. The voluntary severance program launched by Corsan allows employees to convert their stability into severance pay.
“We already have 1,500 applications from interested parties. We are assessing the necessary provisioning of resources and a plan to ensure the operational continuity of the company,” said Mr. Marin.
Today, adherence to the program is the primary variable to be defined for structuring the credit operation for Corsan’s commitments. According to the executive, the expectation is to launch something between the end of this year and the beginning of 2024.
“We just raised funds for Águas do Rio [Aegea’s concessionaire in Rio de Janeiro], and the demand was good. There is the prospect of interest in sanitation, and Rio Grande do Sul is as attractive as Rio. It has a strong economy, the population has a higher per capita income, and payment delinquency is low,” he said.
Corsan’s investment plan to universalize services by 2033 provides R$15 billion in investments. The volume of contributions, around R$400 million per year, should rise to around R$1 billion in 2023 and will have to reach R$1.5 billion annually starting in 2024, according to Mr. Marin.
In addition, the company has already started negotiating with municipalities to regularize the contracts — there are about 230 to be adjusted. Of the 317 municipalities served by Corsan, 87 have already made the regularization in light of the new sanitation law of 2020. These cities account for 55% of the revenue. Of the remaining 230, ten are overdue.
“We are collecting the requests from the municipalities to understand the priority works. We have 80 ongoing negotiations, and ten have already been readjusted. In six months, the situation will be more stable.”
The regularization of contracts was one of the most significant uncertainties in the privatization of Corsan. The fear was of a stampede of municipalities and a wave of litigation in cities that did not accept privatization. In the market, it is still not 100% clear what happens in this case, given that, legally, the contracts are not regular under the new law but are in force.
“Renewal [with Corsan] is the least costly solution, but each city must make its political decision. The alternative to renewal would be litigation, the termination of the contract. In that case, compensation for unamortized investments would have to be paid,” explained Mr. Marin.
Another matter under discussion is how the public-private partnership (PPP) for the Porto Alegre metropolitan region, a contract signed between Corsan and Aegea in 2020, will be handled. One possibility under discussion is incorporating the PPP into Corsan now that Aegea controls it. “We are discussing the situation with our partners [Perfin and Kinea]. The contract is valid; we continue regardless of the contractual relationship. We are discussing the possible incorporation to continue providing the service as Corsan. It is a plausible alternative.”
*Por Taís Hirata — São Paulo
Source: Valor International