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IFC’s First Sub-national Financing in Brazil Without Sovereign Guarantee to Help Improve Water Services in Sergipe State


In Washington:                                                
Adriana Gómez, IFC
Phone: (202) 458-5204
E-mail:
agomez@ifc.org

In Brazil:
Mauro Azeredo, World Bank
Phone: (+55 61) 3329-1059
E-mail:
mazeredo@worldbank.org


Aracajú, Brazil, October 6, 2010. IFC, a member of the World Bank Group, will provide 18.9 million Brazilian reais (US$11 million equivalent) to Companhia de Saneamento de Sergipe (DESO), a water and sewage company, to help the company improve its operational efficiency and optimize use of water resources. This is IFC’s first subnational financing in Brazil without a sovereign guarantee.

IFC’s investment will help improve water services for 1.5 million people in Sergipe, a state where 65 percent of the households live with less than one minimum wage per person. IFC’s local currency-linked loan to DESO will provide the required long-term financing to mitigate water losses and improve water distribution systems. This includes installing and replacing water meters, re-registering consumers, standardizing connections, purchasing operations equipment, and upgrading equipment for administrative functions.

Nearly half of all the water brought to the city from the São Francisco River 100 kilometers away is lost. However, DESO estimates that about 20 percent of water currently categorized as lost is in fact consumed but not billed. With consumption measured accurately, the high loss areas will be identified and the problem addressed.

Max Montalvão, President of DESO, stated: “IFC’s financing will be vital in accelerating our operational and commercial improvement program. It will also help increase the availability of water in a water scarce region, benefiting the local population. At the same time this loan demonstrates the improvement of the company’s management towards sustainable modern corporate practices.”

“This transaction shows IFC’s commitment to identify innovative ways to support projects in Brazil that increase access to services and opportunities for the population. IFC’s financing will support a lasting improvement in financial sustainability of the company, which will allow further investments to improve services and broader access to water and sanitation,” said Loy Pires, IFC Country Manager for Brazil.

IFC’s financing complements a $117.1 million integrated water resources management project that the World Bank is preparing with the State of Sergipe to improve water resources management, strengthen water related institutions, increase water use efficiency and reduce water pollution through wastewater collection and treatment services in municipalities of the Sergipe river basin.

Makhtar Diop, World Bank Director for Brazil, said: “This innovative World Bank/IFC subnational facility loan will help the state further its pioneering efforts to achieve an integrated and sustainable water sector strategy.  Sergipe has made important advances in the past few years in bringing safe and reliable water at affordable prices to its population, especially the poorest.  This initiative will greatly strengthen these efforts and open the door for similar operations in other Brazilian states, particularly in the country's drought-prone Northeastern region. It also demonstrates the close coordination between IFC and the World Bank operations in Brazil, through joint strategic dialogue and complementary loans following similar development objectives under distinct financial conditions.”

IFC’s strategy in Brazil’s water sector has focused on helping both public and private utilities expand services, particularly in underserved and frontier areas, while also conserving water and energy resources.  

IFC’s loan to DESO is made under a subnational finance business line, jointly developed by IFC and the World Bank, which provides financing without sovereign guarantees to well-run local governments and public enterprises for essential infrastructure investments.  Projects are identified and appraised jointly by World Bank and IFC teams, and build upon the World Bank’s long standing engagement with Brazil’s sub national sector.

About IFC

IFC, a member of the World Bank Group, is the largest global development institution focused on the private sector in developing countries. We create opportunity for people to escape poverty and improve their lives. We do so by providing financing to help businesses employ more people and supply essential services, by mobilizing capital from others, and by delivering advisory services to ensure sustainable development. In a time of global economic uncertainty, our new investments climbed to a record $18 billion in fiscal 2010. For more information, visit
www.ifc.org.

About DESO

Established in 1969, DESO operates water and sewage systems in the State of Sergipe, located in the Northeast region of Brazil. The company provides water and sewage services to a broad range of residential, commercial, industrial and governmental customers in 73 of the 75 municipalities in the state.  For more information visit
http://www.deso-se.com.br/.