Established in 1971, CASAN is a majority state government owned water and wastewater utility of Santa Catarina (SC) State. It is owned primarily by the state government and state government agencies. It serves 203 of the 293 municipalities in SC, including the capital city of Florianopolis, and supplies water to about 2.3 million people. CASAN is registered with the Brazilian Securities and Exchange Commission (CVM), and follows its quarterly disclosure requirements. Among Brazil’s 26 state water companies, CASAN ranks among the second tier, mid-sized companies. CASAN’s revenues consist of user charges for water supply (85%) and sewage collection and treatment (15%). Residential customer account for 78% of total water billed. Tariffs are proposed by CASAN and approved by SC State, are based on cost of service plus a small profit and are unified across the SC State.

The total project cost is estimated at BRL52 million. The proposed IFC investment is a BRL40 million (about $23 million) BRL Indexed Loan to CASAN with 7 year tenor (including 2 year grace), longer than that available in the commercial banking market in the country today. It would be guaranteed by a pledge of receivables from water and sewerage services. Internal cash generation will provide the balance of needed funds.

22.73 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	22.73
Equity

* These investment figures are indicative

The project is located in the State of Santa Catarina which is located about 705 km south of Sao Paulo. The project will be implemented mainly in 20 largest systems in urban areas where CASAN provides water and sanitation services, and are spread across the state of Santa Catarina.

The program would strengthen the commercial viability CASAN, save energy and water resources, and better target their subsidies for the poor. This proposed investment will replace 300,000 water meters, about 40% of the underperforming meters still in use. Updating the customer data base, a process that includes on-site inspection, will not only help with better billing and collection, but also in identifying low income residents eligible for subsidized tariffs but not receiving that subsidy. These investments will result in improved billing and collection, reduced unaccounted for water, better reliability of water supply, and energy savings in pumping and treatment of water in the long run.

IFC’s BRL linked loan will provide long term local currency financing for CASAN to undertake investments that will increase its revenues and improve its ability to invest, while helping reduce water losses and conserve energy. Despite the substantial volume of loan and grant financing available for investments in expanding water and sewerage networks and building treatment plants, water companies in Brazil face difficulties in identifying financing sources for efficiency improvement initiatives that can have a lasting impact in service sustainability and long term investment capacity. Supporting CASAN’s investments will demonstrate to other Brazilian second-tier water utilities the potential gains to such initiatives. In addition, IFC involvement with the company will help prepare the company to access financing from banks and local investors at attractive terms and diversify its funding sources beyond local and international Development Finance Institutions.

Since the project will essentially provide CASAN with resources to install and replace macro and micro meters, update the customer data base, and purchase related equipment to improve payment collection and reduce water losses, the direct impacts and risk are minimal, and therefore this operation was Categorized as C. Furthermore, the project is expected to generate a positive environmental and social footprint in CASAN''s influence area, as it will improve water distribution efficiencies, reduce unaccounted water, and generate energy savings. As a request to first disbursement the company will need to present (a) a disposal and reuse plan for the equipment to be substituted/ decommissioned, and (b) a communication plan to inform the clients of possible increase in billing due to meter replacement and /or more efficient billing, including a description of the mechanisms to be used to mitigate the potential economic impacts on households, especially in the cases of low-income users.