In the midst of a pandemic that was killing thousands of its people a day, Brazil’s far-right government went ahead with a lucrative water privatization scheme. The profit-driven sale of this most essential life-giving resource was bankrolled by nearly a billion dollars from Canadian workers’ pension funds. Ricochet spoke to some of the union activists in both Brazil and Canada who are fighting back.

“We were disappointed when this illegal auction and privatization went ahead,” says Hélio Anomal, a labour activist in Brazil. “But we are more committed than ever to fighting this.”

Unions and activists worldwide have raised major concerns about the recent use of Canadian pension funds to finance the ongoing privatization of public water in Brazil.

In early May, the Bolsonaro government auctioned off Brazil’s water and sanitation services — 90 per cent of which were handled by public companies or municipalities — to private companies in a fast-paced, highly contested and potentially illegal act of privatization.

Because public water companies can no longer get service contracts, they are being privatized. One of those companies was Companhia Estadual de Águas e Esgotos (CEDAE), formerly Rio de Janeiro’s water and sanitation provider and the largest and most profitable in Brazil.

Both the Canadian Pension Plan Investment Board (CPPIB) and the Alberta Investment Management Corporation (AIMCo) hold major stakes in Igua Saneamento, a private water and sanitation company in Brazil. The company — thanks to almost $900 million in total Canadian pension funds — now controls one “block” of CEDAE’s former service area covering millions of people. The CPPIB alone has committed a staggering $655 million to the venture, which it joined as an investor only in March, when privatization was picking up speed.

Together, Canadian pension funds hold over 85 per cent of Igua Saneamento. CPPIB holds a 46.7 per cent stake, while AIMCo — which signed on back in 2018 — holds 38.6 per cent. However, IG4 Capital, a Brazilian private equity group, is still the controlling shareholder.

While the Bolsonaro government has defended its massive privatization agenda as a boon to economic growth, critics argue it is wrong for companies to profit off a basic resource necessary for life. Because privatization often comes with higher costs, many worry that access to water and sanitation will be further threatened in a country where this is already a major problem. These concerns rise from the new costs consumers will expect from privatization, further threatening already existing water and sanitation problems. In Brazil 35 million people face water insecurity, and an estimated 100 million do not have access to proper sewage infrastructure. Insecurity is particularly acute for Indigenous populations, with entire reserves lacking access to water.

The threat of inaccessibility takes on particular significance as the country fights off a devastating COVID-19 pandemic, a situation in which easy access to water has been necessary for survival.

Internal union research made available to Ricochet found that the 6 per cent of the population that currently receives water and sanitation services from private providers pays considerably more — sometimes 70 per cent — than those with public providers.

“It’s clear what this will mean for all of us,” says Anomal, who is president of STAECNON-RJ, one of the three unions representing CEDAE workers. “Higher bills, cutting people’s water off and denying them their human rights to water, running down the infrastructure that we’ve worked to build up over decades while a few turn their backs on us and run off with the loot.”

“I mean it’s ridiculous — the idea of profiting off people’s need to access the most basic means of subsistence that exists. The money that’s going to be taken out of the system as profit is exactly the money that was previously used to invest in water and sanitation services in areas that aren’t ‘profitable.’”

Privatization also means nearly 3,500 CEDAE workers in Rio are staring down layoffs, stoking the ire of Brazil’s unions.

“[CEDAE workers] haven’t given up,” Anomal says. “We know that this whole process went against the decisions and the will of judges, our elected representatives, the population and most importantly the workers at CEDAE themselves.”

Unions charge that the government’s privatization may actually be illegal on the basis of human rights to water and sanitation. They are challenging the government in court on those grounds.

“We’ve got a process at the Supreme Court, which we hope will overturn this auction, and we continue to maintain the mobilization at the workplace and with our allies in the community.”

The view from Canada

Public sector unions in Canada — including the Canadian Union of Public Employees (CUPE) and the Public Sector Alliance of Canada — have decried the use of public money to fund privatization and demanded a change in course.

“CUPE is strongly opposed to pension funds investing in, and profiting from, privatized infrastructure. We want our pension funds to make decent investment returns, but not at the expense of workers and the Canadian public, or workers and residents in other countries. The CPPIB must pull out of this harmful and risky privatization plan,” National Secretary-Treasurer Charles Fleury said in a statement.

Given both the possibility of the Supreme Court overturning it and Bolsonaro’s cratering popularity, many critics in Canada and abroad have noted the outsize risk in the Igua investment. They argue that the possibility of the left-wing Workers’ Party returning to power means the water and sanitation sector could be renationalized — and that pension funds could suffer.

“We’re going to get rid of Bolsonaro in elections next year — if he’s not impeached first — and that could mean the return of the Workers’ Party,” Anomal says. Many believe the Workers’ Party will be helmed by popular former leader Luiz Inácio Lula da Silva. “Lula has come out clearly against this privatization and others like it. So for Canadians it’s a terrible decision in every sense.”

Nevertheless, Scott Lawrence, a managing director for Canadian Pension Plan Investments, said in March that “the opportunity to invest in a platform [like Igua] that can address the high demand for improved water and sanitation services in Brazil is a good fit with our diversified global infrastructure portfolio.”

Despite the controversy and pushback, the federal government has remained tight-lipped. Neither Global Affairs Canada nor Canada’s Trade Commissioner in Brazil responded to a request for comments.

But as The Breach revealed, Canada’s Brazil trade commissioner showed support for Bolsonaro’s initial announcement of market reforms in the water and sanitation sector in 2020, claiming they would “create more certainty in the market and increase market access and competition in a sector that has traditionally been controlled by state‑owned companies.”

The 20-year transformation of pension funds — and the fight to shape it

Pension funds pursuing aggressive investment strategies is a fairly recent phenomenon. In 1999, after a few years of flirting with more “financialized” investments, the Canadian Pension Plan permanently moved away from traditional forms of retirement banking. Instead of simply investing in low-risk government bonds, for example, pension funds took on a more hedge fund–like desire for high rates of return.

This derives — at least partly — from the pension fund managers’ fiduciary duty (or mandate), which is to maximize profits for Canadian pensioners, first and foremost. This means investing in all manner of enterprises, even those that may generate controversy.

Kevin Skerrett, a pension researcher with CUPE, says “The investment of the CPPIB in Brazil is a particularly disturbing example and illustration of a trend that’s been unfolding in Canada for 20 years.”

Activism against “unethical” pension fund investments has been picking up momentum around the world. Following a longstanding #DivestNY campaign, climate activists scored a major victory in December of 2020 when New York comptroller Tom DiNapoli announced that the massive, $226-billion New York State Common Retirement Fund would “divest from the riskiest oil and gas companies by 2025 and decarbonize by 2040.”

Even though pension funds still operate in relative obscurity, Skerrett argues that instances like Igua Saneamento help shed light on their behaviour. “It takes an extremely ugly investment like this particular investment in Brazil, which I think the senior investment managers have gone a little too far on. I think this is going to be a turning point of drawing attention to what they’re doing.”

Indeed, the CPPIB and AIMCo are far from outliers in their investment strategies. The Ontario Municipal Employees Retirement System holds a large stake in Thames Water, the U.K.’s largest privately owned water utility company, which originated amidst Britain’s privatization programs of the late 1980s and early 1990s.

And as of 2017, the Ontario Teachers’ Pension Plan was the largest investor in Chile’s water and sanitation infrastructure, controlling 41 per cent of the sector as a whole. Few countries have paralleled Chile in the level of private ownership of the economy, namely due to the intense restructuring policies of the Augusto Pinochet dictatorship in the 1970s and 1980s.

Skerrett continues: “We need a much greater recognition of this problem, of the destructive, predatory role that our financial institutions — particularly our federal government-sponsored financial institutions like this — are playing in countries like Brazil and Chile.”

Anomal echoes the sentiment. “Canadians should know that by participating in this auction they are directly supporting Bolsonaro. I doubt they’d be okay with that. I also doubt they’d be okay knowing that their retirement is being funded by people in Rio paying their water bills — and being cut off if they can’t pay of course.”

Risks and guarantees

In the eyes of pension funds, privatized infrastructure is often an attractive investment. But certain criteria does have to be met: risks of all kinds must be sufficiently mitigated. One way of mitigating risk is getting guarantees.

Skerrett notes that “sometimes investors are also able to establish structures that actually have the local host country government providing the investor with certain kinds of guarantees: revenue guarantees, guarantees against inflation — there can even be guarantees of minimum profit levels.”

“If a government is prepared to provide things like that, it should not surprise us that pension funds are going to be attracted to these jurisdictions.” But what kind of guarantees can a government give to investors — especially when that government may lose an upcoming election to a party that might renationalize a sector? Furthermore, water service renationalization is a growing trend globally, according to a report from the Transnational Institute.

“The investors on the ground,” Skerrett says, “may have confidence that this government will be reelected. They may also have confidence that even in the event of the election of a Workers’ Party government, the structures of power in Brazil — and international structures under things like treaties and the World Trade Organization — will mean the cost and complexity, both legally and politically, of attempting to undo a privatization like this will be so difficult for a future government that it will be impossible.”

“There are contracts, legal commitments and obligations that can sometimes be attached to investments involved that we’re not even aware of.” Presently, the contract is slated to last 35 years.

Nonetheless, the Supreme Court challenge could change the circumstances considerably. “The practical side of this that Canadians need to know about is that this decision is really insecure in juridical terms,” Anomal adds. “The whole privatization could be undone if we win the legal processes we’re engaged with.”

In Canada, CUPE plans to continue organizing around this file, including hosting an upcoming town hall featuring activists and workers in Brazil.

The fightback is not slowing down in Brazil. “We’re committed to continuing and expanding the struggle,” Anomal says. “We’re still actively resisting in the streets, at the workplace, in the courts, in the legislatures and in the media. Hopefully we can include Canadians in that struggle. I invite anyone interested in finding out more to get in touch with the regional office of our global union, Public Services International.”

Dan Darrah is a writer and editor living in Toronto.

Credit to Euan Gibb for translating the interview with Hélio Anomal.