Elusive Boundaries

In April 2021, investors gathered at B3, Brazil’s stock exchange, to bid for water concessions in Rio de Janeiro. The former capital city and its surrounding municipalities had been divided into four “concession blocks,” all of which were up for grabs. Among the bidders were firms owned by private equity and institutional investors, including state-led investment funds. In total, 22.7 billion reais were raised: the largest ever auction of water and wastewater services in the country.¹

Rio was not alone. In the last three years, nearly thirty such auctions were held across Brazil, totaling around 100 billion Reais in investment commitments.² As in Rio, several of the contracts auctioned encompassed “blocks” of municipalities—pooled together so as to draw in investors. The wave of auctions has been much celebrated, with public officials and business actors promising that public-private collaboration would pave the way for better services, expanded access, and socioeconomic development. 

The promise is familiar. It echoes the optimism about private initiative that marked the spread of neoliberal policy ideas in the late twentieth century, and the continued faith development institutions place in public-private partnerships for financing infrastructure projects and service provision—even when this faith is at odds with patchy and sometimes dire track records globally. (In the case of public-private water, the ongoing pollution debacle in England is just the latest example of the shortcomings of the approach.). 

It would be easy to read the wave of auctions in Brazil simply as a renewed neoliberal offensive against public services. The auctions come, after all, on the heels of eagerly pursued market-oriented reforms under the administrations of Presidents Michel Temer (2016–2018) and Jair Bolsonaro (2019–2022). But such a reading would neglect the fact that both Temer and Bolsonaro faced setbacks in their efforts to reform water provision. And it would obscure rather than reveal the political processes and market transformations that led here. The recent influx of private investment differs from prior state efforts to encourage private participation during the heyday of neoliberalism in the 1990s. Private water provision at that time developed in relatively timid, small-scale, and scattered ways. What changed?

The history of private water provision in Brazil exemplifies transformations in state-market relations over the past three decades. It features feeble market expansion efforts under pro-market governments, ambivalent state action under ostensibly more active ones, devastating political scandals, and shifting investor landscapes amid increasing financialization. This history shows that the fate of neoliberal or other policy frameworks is determined by power relations and concrete political struggle. More fundamentally, it reveals the practical challenges of demarcating where states end and where markets begin.³ Policy debates around public-private collaboration or public versus private service provision assume too neat a separation between the two. From national policy to the inner workings of utilities, water provision in Brazil illustrates that these are not fixed entities; the boundaries that divide them are often blurry, drawn by the politics of contestation and compromise. 

Ambitious privatization—almost

In 1995, with the aim of remedying lackluster infrastructure investment and placing Brazil “back on the path of sustained economic development,”⁴ President Fernando Henrique Cardoso (known by his initials, FHC) introduced the Concessions Law—a piece of legislation which allowed private actors to deliver public services like water. The moment appeared ripe for such a reform. Across Latin America and elsewhere, governments were experimenting with liberalization and privatization, due to a mix of economic and fiscal troubles, structural adjustment pressures, and loss of faith in state-led development. 

FHC’s administration pursued what it claimed in a letter to the International Monetary Fund was “one of the most ambitious privatization programs in the world.”⁵ But while the government succeeded in advancing such programs in sectors like energy and telecommunications, it faltered when it came to promoting large-scale private investment in water—and not for want of trying. The government mobilized the National Development Bank (BNDES) and federal banks like Caixa Econômica to make dedicated financing lines available for private water companies. It also sought to put in place a new legal framework for the sector to clarify property rights and introduce regulatory norms. 

But there were various political roadblocks along the way. In Congress, the proposed framework failed to advance, encountering strong opposition from public providers and civil society groups such as the National Front for Environmental Sanitation (FNSA).⁶ On the ground, there was the challenge of getting mayors and state governors on board. Since democratization in the late 1980s, municipal governments generally held responsibility for urban development policy, including the provision of water and wastewater services. But these services have long been provided primarily by state government-owned companies created during the military dictatorship (1964–1985). With the federal government as the main source of financing, the existing institutional architecture meant that water provision was necessarily a multi-scalar affair. Where the political and ideological stars aligned enough to push local governments to shift services into private hands, there was also the challenge of anti-privatization mobilization, which succeeded in thwarting a number of concession projects. 

Political disputes and misalignments help to explain why early efforts to expand private water provision generally stumbled when the policy climate appeared set for them to advance. But even missteps can sow seeds. Some private investment—generally through small, sparse, and localized concessions—did occur, forming the contours of a private market. Unlike in the infamous water privatization experiences of Bolivia or Argentina, the private sector characters here were mainly domestic engineering and construction groups, rather than big multinationals like Suez. But, as we will see, it was construction groups who would later play key roles in the development of private water provision—this time in a context of bonanza, rather than fiscal austerity.  

Two-headed monsters

Where private investment occurred at a larger scale during the late 1990s and early 2000s, it was through the initiative of pro-market state governors with political clout, such as in Paraná. In 1998, Paraná’s governor, the famous architect and urban planner Jaime Lerner, auctioned off nearly 40 percent of Sanepar’s common stock, while retaining majority control over the company. The winning bidder was Dominó Holding, a private firm held by a combination of investors, including Brazilian construction group Andrade Gutierrez and the French multinational Vivendi (now Veolia). 

Proponents of joint public-private ownership see these arrangements as pulling out the “best” of each half of the equation, while critics see the risk of “two-headed monsters,” whose contradictory interests —what agency theorists call “principal-principal problems” between state and private shareholders—may produce conflicts and inefficiencies. For that to occur, however, the public and private sides need to be distinct. 

During Lerner’s administration, it was hard to tell public and private interests apart. Despite having majority control, the government largely adopted a laissez-faire approach, letting the private partner run the show and encouraging its search for profitability. Dominó had de facto veto power in the administration board, held strategic management positions, and maintained a close rein on operational decisions, fostering an “efficiency-at-all-costs” ethos that included what one manager described as “extreme things” like “turning equipment off to save energy.”⁷

This “synergistic” relationship came to a halt following the election of Roberto Requião as state governor in 2002. Requião favored what might be called a more statist approach to service provision, vowing to challenge the existing shareholder agreement and curb Dominó’s influence. Relying on state appointed managers and other allies within the company, the government took on a more active role. It sought to steer service provision away from a focus on efficiencies towards other concerns such as affordability for low-income households and coverage expansion to rural areas—decisions that also catered to Requião’s constituents. While the company remained profitable, its relative profitability declined.

From the perspective of other private investors and financial market analysts who followed the case, Requião’s term (2003–2010) was disastrous: a prime example of undue political “interference” in company activity. But what the Sanepar case in fact illustrates is that politics cannot be removed from the equation. As Bob Jessop once put it, to the extent that the state acts, it does so through “specific sets of politicians and state officials.”⁸ Forms of electoral, bureaucratic, or contentious politics bring different planning rationalities into it. In some instances, these align with market interests, as in Lerner’s term, while in others they may help to advance socially minded aims, as in Requião’s term. Utilities, then, emerges not as something to be insulated but as a space of legitimate political struggle over the direction of service provision and of “public-private” relations.

Ambivalence and compromise

While Requião’s administration was clashing with Sanepar’s private shareholders in Paraná, at the national level President Luiz Inácio Lula da Silva (2003–2010) sought to appease investors while advancing a new vision of development. Much like the rest of the so-called pink tide in Latin America, the political program of the former metalworker and leader of the Workers’ Party (PT) promised greater social welfare and more active state engagement in directing, rather than simply enabling, economic activity. In practice, however, the “more state and less market” agenda often translated into vacillating commitments that tried to do a bit of everything. 

With the shift from FHC to Lula, broad-scale water privatization was no longer on the horizon. Indeed, a favorable macroeconomic context invigorated public investment in infrastructure, providing relief to many public water providers. Riding the wave of the 2000s commodity boom, fiscal strangulation and scarce public investment—trademarks of the 1990s—were in Brazil’s rearview mirror. Lula’s Growth Acceleration Program (PAC) promised nearly 504 billion reais in physical and social infrastructure investments by 2010.⁹ But the new flow of cheap public financing was also attractive to construction business groups with a long-standing and wide-ranging presence in domestic infrastructure development. Eyeing opportunities to cash in and to expand their portfolios, some of these groups began to look into water provision. 

Legal and regulatory changes further stimulated private sector interest. In 2004, Lula’s administration introduced a law to govern public-private partnerships, which expanded the range of private investment modalities beyond concessions and signaled that “public-private collaboration” was not off the table. In 2007, the president signed the “Sanitation Law,” which put in place a new regulatory framework for the provision of water and wastewater services.¹⁰This new legislation was essentially mute on the question of ownership over service provision, an omission that reflected the need to negotiate among competing interests in the sector.

One of the core disputes around the legislation concerned the allocation of ownership rights between municipalities and states. No longer needing to unite against privatization threats, municipal governments and state providers now fought for control.¹¹ The federal government generally favored municipal interests. This largely owed to Lula’s appointment of leaders of the FNSA—the broad-based civil society coalition which had been instrumental in blocking FHC’s proposals—to coordinate policymaking around water and wastewater services within the newly created Ministry of Cities. The appointments reflected the Workers’ Party strong roots in social movements,¹² which turned many activists into bureaucrats, as well as FNSA’s support for Lula’s election bid. As a movement, FNSA had historically supported municipal autonomy.

In 2005, the administration introduced a bill in Congress that, among other things, required the creation of regulatory agencies for water provision, encouraged public participation, and defined which local services were owned by municipal governments. But this proposal was undercut by a competing bill, favoring state companies, that was put together by state governments. At risk of losing its hand, the federal government sought a compromise. Sectoral actors, including a more organized group of private companies, came together and resolved to leave the issue of ownership vaguely specified and thus unresolved in the final legislation. The solution worked well for existing private companies, who argued that any policy framework would be better than an uncertain stalemate. Behind the scenes, they had sided with state companies—perhaps hoping to secure larger public-private partnerships down the line. 

With the Sanitation Law in place, some of Brazil’s largest construction groups, like Odebrecht and Grupo Galvão, sought to expand and consolidate their activities in the water sector. They acquired existing contracts from other providers and used their local political ties and skill to win new ones. Gradually, the private share of water and wastewater services—albeit still comparatively small—not only grew but became concentrated around a handful of holding companies: Odebrecht Ambiental, CAB Ambiental, Equipav (later Aegea), and Águas do Brasil. These market changes would pave the way for the recent wave of private investment. All four of these companies—some under new names and owners—featured among the top winners of recent auctions in the sector, including in Rio.

If water politics under FHC showed that private sector interests may falter under pro-market administrations, Lula’s term reveals how they may advance under ostensibly more statist ones. Along with a general ambivalence towards private investment and business interests, power struggles within the sector and political compromises combined to inadvertently contribute to the consolidation of a private market for water provision. 

A “Bridge to the Future”?

Judging from newspaper headlines or soundbites from policymakers or investors, one might also credit the recent wave of auctions to another reform: Law 14.026, commonly known as the “New Legal Framework for Sanitation,” which was approved in 2020. This law altered several provisions of the contested 2007 Sanitation Law and, from its conception under President Temer, was explicitly designed to expand private water investment. 

When Temer became president following the impeachment (or coup) of President Dilma Rousseff in 2016, private water provision was undergoing a restructuring. The anti-corruption investigation known as “Lava Jato” (Operation Car Wash) implicated several Brazilian industrial groups in overpriced contractual schemes and unlawful political contributions. The scandal ravaged Brazilian politics and economy. It took a particular toll on construction groups, who subsequently sought to relinquish assets. As they stepped out of the water sector, finance stepped in. The boom years of Lula’s administrations and regulatory developments had stimulated Brazil’s private equity and investment fund industry. In 2017, the private equity groups Brookfield Business Partners (Canada) and IG4 Capital (Brazil) acquired Odebrecht Ambiental (renamed BRK Ambiental) and CAB Ambiental (now Iguá Saneamento), respectively.

One implication of this shifting investor landscape was the growing demand to revisit the existing rules of the game. The 2007 compromise no longer sufficed. With money in stock from financial investors ready to be invested, the largest private water holdings wanted more room to grow, which required turning against state companies and challenging their market power. Regulatory fragmentation also caused anxiety around varying local norms and political demands. It is perhaps unsurprising, then, that private water companies joined forces and went all in on the possibility for institutional reform which opened with the transition to Temer’s administration.

Shortly before Rousseff’s impeachment, Temer’s political party, the Brazilian Democratic Movement (MDB)—the same party as FHC—had put forth a new political program titled “A Bridge to the Future” (Uma Ponte para o Futuro). Ironically, in calling for “a development policy centered on private initiative,” the program read much like a return to the past.¹³ Not long after taking over, Temer’s administration sought to use the National Development Bank (BNDES) to encourage state water companies to engage in ample public-private partnerships—a route that proved less fruitful than hoped for, even as several of these companies struggled in light of Brazil’s deepening economic crisis, fiscal woes across levels of government, and shortage of funds. Once again, multi-scalar political alignments proved to be a roadblock. 

Seeking alternative routes, Temer’s administration introduced a provisional executive decree in 2018 aimed at changing the legal and regulatory framework for the sector, to allow for greater private engagement.¹⁴ Private water companies provided much input into the framework, but the decree faced strong opposition from civil society groups, municipal providers, and state companies, ultimately expiring before a vote in Congress. Bolsonaro’s government faced the same fate when it tried to get a new iteration of Temer’s decree approved by legislators in the first half of 2019.

In light of these consecutive defeats, new state-business articulations and persistent political mobilization by private sector actors proved crucial for pushing a new legislation through. Whereas Lula’s government had sought to draw civil society groups and movements into the state, Bolsonaro’s shifted state boundaries towards finance. His chosen Minister for the Economy was the Chicago-trained economist and investment banker Paulo Guedes. Under his reins, financial interest increased in the water sector. Private water firms worked closely with policymakers in the Ministry to draft different iterations of the legislation. They also lobbied hard to build support for it in Congress and in the media. Rather than frame the reform around narrow interests, they promoted a public narrative that emphasized the shortcomings of state companies and placed public-private collaboration at the center of a broader quest to universalize service access. They suggested that, once approved, the new legal framework would pull Brazil out of the “Middle Ages” and bring the country into modernity. 

Rescuing politics

The moments recounted here show that there was nothing necessarily inevitable or certain about neoliberal projects under FHC, Temer, or Bolsonaro. Like Lula’s variety of state developmentalism, their fates were shaped by political processes.  

What this history reveals is the need to put politics at the center of how we think about state and market, public and private. The idea of “public-private collaboration,” for instance, has not only underpinned recent water policy in Brazil but also featured prominently in contemporary debates about sustainable development. After returning to power following a difficult election against Bolsonaro last year, President Lula is announcing a green transition policy package grounded on a mix of public investment, public-private partnerships, and sustainable finance. 

Mainstream development advice touts the potential for partnerships with global capital (via myriad investment instruments) to address infrastructure gaps, tackle poverty, or support climate action. Such prescriptions around public-private collaboration tend to focus on contracts or institutional design, rather than politics—indeed, in infrastructure sectors, the concern is often with insulating arrangements from political interference. What this perspective neglects is that public-private partnerships are not just instruments, they are political relations in themselves. Efforts to remove politics from the equation are often veiled attempts to constrain the political space to the interests of some, like investors, at the expense of the interests of many. 

Equally, while we should envision a strong role for the state in steering the private sector towards clearly defined missions and goals, we should not overstate the state’s capacity to set clear boundaries and direct policy across different sectors over time. As water investment in Brazil shows, state action is neither coherent nor immune to messy democratic politics.

This essay is adapted from “Disordering Capital: The Politics of Business in the Business of Water Provision.”