Rio de Janeiro collects billions in CEDAE concession but debt to federal government not settled

RIO DE JANEIRO, BRAZIL – Despite having collected R$18.2 billion with the auction of the State Company for Water and Sewage (CEDAE) concession, Rio de Janeiro has not yet reimbursed the federal government for the loan taken out with BNP Paribas, which matured in late 2020 and was paid off by the federal government.

The Federal Attorney General’s Office has lodged an appeal in an attempt to overturn a Federal Supreme Court injunction preventing the collection of the R$4.3 billion debt, but the petition has not yet been judged. The Rio de Janeiro state government, in turn, wants to spread the repayment over a long period, up to 30 years.

Although the state owes tens of billions to suppliers and the federal government itself, Rio governor Cláudio Castro has said that he intends to use the CEDAE concessions to invest in infrastructure.

The federal government fears that the state administration will use the funds for electoral purposes rather than to rebalance the state’s accounts, while requesting new protection through the Fiscal Recovery Regime (RRF), the federal government’s bailout program for indebted states.

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To sources, Rio government officials have said that state law requires the use of CEDAE’s money to pay off debts in the case of the sale of the company’s shares, but, since the operation was a concession rather than as sale, there is no rule for the allocation of resources – in other words, the government would be free to spend on other initiatives.

In the absence of Rio’s willingness to settle its debt, the AGU is trying to persuade the STF to overturn the injunction and allow the federal government to execute the collateral to repay the federal coffers on the December 2020 loan on behalf of the state.

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The federal government believes that, with the state coffers supplied by CEDAE concession funds, it is more difficult for Rio to allege a “serious financial situation,” the argument used by the Rio de Janeiro administration in recent years to ward off collections. The Rio de Janeiro State Treasury Secretariat declined to comment.