As one of the countries most globally exposed to the coronavirus pandemic, Brazil has confined significant portions of its economy to “flatten” the contagion curve. Of all the corporations that will be affected by the economic surprise of source and demand, the public in the water, energy, and urban transportation sectors deserve special attention because of their critical role and expressed characteristics.
In fact, these companies (i) provide essential facilities for the population as a whole, that is, essential for the most vulnerable; (ii) they operate in a highly regulated environment and are not free to set their costs or choose their customers; (iii) they face monetary difficulties due to the disruption of economic activity and supply chains as a result of existing containment policies; and (iv) not having immediate competence (public or private) to update them in the event of collapse. Some examples would possibly help in this situation:
Public corporations in the water and sanitation sector (WSS) supply water facilities to 57 million families and sanitation facilities to more than 32 million families in Brazil. The monetary and fiscal dangers faced by WSS-SOE corporations are expanding in the context of COVID-19, although their monetary exposure varies among Brazilian states. The estimated loss of profit loss and monetary risks affecting all Brazilian states range from $100 million to $125 million per year in the absence of COVID-19 reaction measures.
The states where state-owned water and sanitation companies are most exposed are Amazonas, Santa Catarina, Maranhão, Minas Gerais, Rio Grande do Sul, São Paulo and Piauí. It is imperative to avoid the monetary, fiscal and deficit dangers that affect these public facilities. its monetary collapse. Finances for WSS utilities and service providers deserve to be aimed at maintaining and restoring operations and avoiding the dangers of a monetary default in the medium term.
Energy facilities are also imperative to protect human health and sustain hospitals facing the COVID-19 pandemic, as well as to ensure economic recovery. The surprise caused by the quarantine has caused a slow drop in energy consumption of up to 20% among the most successful advertising and advertising users.
The effect on the financial and operational functionality of distribution companies is compounded by increased risks of non-payment and pressures on profit collection, due in part to the measure to prevent disconnection in the event of non-payment. Rate increases were suspended, further exacerbating distributors’ liquidity constraints and impacting their ability to meet long-term forced offtake agreements with generators.
The overall impact on the sector is estimated at R$ 22 billion, affecting at most public utilities operating in the poorest regions of the North and Northeast, which were already suffering from significant advertising losses and low reliability of formulas. Beyond the ambitious policy measures already in place, there is a need to prioritise energy and fuel efficiency, and adopt financial formulas to drive progress towards Light for All and a blank energy transition.
The effect is also strong in the urban public transport sector, and the other actors in urban mobility are affected in other ways. Three categories of stakeholders were identified: (i) a few giant public transport corporations (e. g. , Metrô and CPTM in São Paulo, CBTU in several cities, or Trensurb in Porto Alegre); (ii) a few giant personal operators, basically in the rail transport segment, supported through giant foreign corporations (e. g. , CCR in Salvador or SP, or Mitsui in Rio); and (iii) private bus operators, which offer services in large and small cities. Moovit’s data suggests that footfall has fallen by 50% to 70% in Brazil’s metropolitan areas. The ANTF (National Association of Railway Transport of Brazil) reported a 63% drop in passenger numbers. in March compared to last year. This represents a deficit of 130 million dollars for the month of March alone.
Assuming that and ridership start rising around mid-July, the shortfall is estimated at $700 million for the urban rail sector alone, $400 million for staff-consistent operators, and $300 million for public operators. Losses are estimated at $200 million per day. There is no data available at this point on the monetary resilience of these giant companies, nor on their ability to absorb the shock, even if they operate in a highly competitive environment that does not leave much room for massive margins.
Brazil has around 34,000 bus companies, adding urban and intercity services. They employ about 700,000 people and supply 86% of all public transport in Brazil, or about 46 million trips per day. A collapse of those businesses would have immediate effects on urban congestion levels, as well as the ability of many workers to get to their workplaces, not to mention the ability to offer any alternative solutions.
Public assistance will be needed to ensure that affected businesses in those critical sectors last the shutdown and avoid significant disruptions to the daily lives of many citizens, as well as imaginable liabilities from the already strained finances of subnational governments.
An example would be to provide liquidity to operators of maritime public transport services or water and electricity distribution companies, through lines of credit provided through national or state governments. Or a guarantee mechanism to take advantage of advertising loans. However, this can also be an opportunity to introduce innovations rather than simply returning to the prestige quo ante.
These innovations focus on more sustainable investments and healthier control practices, such as green shipping (e. g. electric buses) or the requirement for complex metering generation for electricity and water suppliers as a prerequisite for accessing monetary support.
This article was written in collaboration with Renato Nardello, Program Manager for the Infrastructure and Sustainable Development Sectors of the World Bank in Brazil.