Understand the sanitation framework, which came into the sights of the new Lula government

The basic sanitation framework returned to the debate after members of the transition team of the president-elect, Luiz Inácio Lula da Silva (PT), defended changes in legislation, which stimulated the participation of the private sector in the water and sewage sector.

Although the issue was not dealt with in the final balance of the transition, there are expectations that the new government will recommend revisions, especially with regard to concessions and privatizations.

This week, sector entities released a letter saying that the sanitation framework could suffer a setback during Lula’s new term. The argument is that limiting market opening would be a regulatory step backwards, which would reduce competition and jeopardize universal access to water and sewage.

What is the sanitation framework?

The Legal Framework for Basic Sanitation (14,026/2020), sanctioned in July 2020 by President Jair Bolsonaro (PL), established goals for the universalization of water and sewage services, and sought to attract private investment to the sector.

In practice, the measure changed the way concession contracts are drawn up, making prior bidding mandatory – which opened up more space for private companies to participate in the dispute.

The legislation also defined the ANA (National Water Agency) as the sector’s regulatory agent, created an Interministerial Committee for Basic Sanitation, and set goals to end open-air dumps in Brazil — whose schedule is behind schedule.

The approval of the milestone took place in June 2020, in the Senate, after controversies and discussions. At the time, the entire PT bench, with six senators, voted against it.

One of the points criticized was the speed that the defenders of the measure were giving to the procedure. For opponents, the debate on a new sanitation framework would need to be done with caution and at a less troubled time of the pandemic, which had been enacted three months earlier.

But the main point under debate was the incentive to privatize the service. Parliamentarians opposed to the proposal questioned the possibility of increasing tariffs and the risk of lack of assistance in regions with little commercial attractiveness.

What are the main measures of the sanitation framework?

The new legislation set the goal of expanding access to drinking water to 99% of the population by 2033. By then, sewage treatment and collection should also reach 90%.

Currently, around 16% of the Brazilian population does not have access to drinking water and 44% are not served by sewage, according to data on the Snis portal (National Information System on Sanitation).

The deadline for meeting the targets, however, may be increased by another seven years (until 2040), if technical or financial unfeasibility is proven.

The estimated cost of universalization of services is estimated at around R$700 billion, which takes into account contributions to expand infrastructure and resources to restore the depreciation of existing assets.

The figures created expectations for the economy. Due to the sector’s shortcomings, the sanitation framework was seen as a point of stimulus for growth and an impetus for attracting new investments.

What has changed in sanitation contracts?

Municipalities are responsible for sanitation services and, in the previous model, could sign contracts with state companies without bidding. With the new framework, this is no longer allowed, thus opening more space for private companies to compete for contracts.

The legislation determines the holding of bidding, with the participation of public and private providers, and ends with the preemptive right of state companies.

In practice, the measure extinguishes the so-called program contract, which allowed state companies to provide water and sewage services without direct competition.

This is one of the points that came into the sights of the new government. There is the expectation of a repeal of provisions through decrees to guarantee the possibility of program contracts.

The transition team’s justification is that the current framework discriminates against public companies in bidding processes.

Mário Saadi, partner at Cescon Barrieu Advogados in the area of ​​infrastructure, explains that private companies were not previously prohibited from participating in the sanitation sector.

However, historically, services were in the hands of state companies, which, in his view, occurred for political reasons, not technical ones.

“This meant that investments fell short of what the country needed”, he says. “There were direct hires with unclear rules regarding investments and goals that needed to be met, and without incisive regulation.”

The framework forced bidding processes to be carried out, but allowed existing contracts at the time to be continued, as long as the companies proved, by 2022, the economic and financial feasibility of achieving the universalization targets.

Since 2019, the private sector’s participation in serving the population has increased from 14% to around 23%.

According to Abcon (Association and National Union of Private Concessionaires of Public Water and Sewage Services), in two years, 21 concession auctions were held in 244 municipalities.

Who is responsible for regulating sanitation?

The basic sanitation framework determined that the role of creating norms for all spheres of public administration —municipal, state and federal— is incumbent upon ANA and help standardize the sector’s rules.

The agency is a federal autarchy linked to the Ministry of Regional Development, which operates with administrative autonomy.

The elected federal deputy Guilherme Boulos (PSOL-SP), who was part of the transition group, has criticized the model in recent weeks. “It’s harmful for you to have a regulatory agency like the ANA with superpowers and no control over society,” he said in November.

The new government is considering transferring this competence to a new department linked to the Executive Branch, the National Secretariat for Environmental Sanitation. In the opinion of critics, this could allow the execution of contracts to be subject to the political interests of the federal administration.

Is there still a lack of regulations for the sanitation framework?

At the time of approval of the framework, the expectation was that the measures would come into effect the following year, in 2021. However, as is common, the implementation of a new law depends on regulations and the publication of normative acts.

According to Saadi, a decree has already been published on how federal public resources should be allocated to state and municipal projects. In addition, other texts were edited to update the powers of the regulatory agency.

“For the next two years, ANA has some points to regulate, ranging from water loss discipline to tariff review processes”, he says. “Other than that, I don’t have much hesitation in saying the new milestone is done.”