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PPI and the New Regulatory Framework for Sanitation

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29 de junho de 2020

PPI and the New Regulatory Framework for Sanitation

mãossanitation

Almost 35 million Brazilians have no clean water supply, and almost half of the population (about 100 million people) has no sewage collection. These circumstances result, every year, in thousands of sick leaves due to GI diseases, hospitalizations and deaths. It also influences the average household income and rates of school delay.

On 06/24, the Brazilian Federal Senate approved bill 4162/2019, labeled a new regulatory framework for basic sanitation, which will transform this situation: the new rules contribute to bring more legal security and competition to the sector, making it more attractive for private investments.

According to estimates, the universalization of water and sewage services by 2033 would require BRL 600 billion in capital expenditure. Currently, the private sector accounts for about 6% of the Brazilian sanitation market, but it has been responsible for 20% of investments. Private concessionaires invest, on average, 2.5 times more than state-owned sanitation companies, but the fees charged are similar to those of public companies.

 

PPI and basic sanitation: a great partnership

The Investment Partnerships Program (PPI) has championed with great enthusiasm the new bill, which will change the country's landscape in terms of sanitation and will have significant impacts in terms of health, education and labor productivity. It will also contribute to the preservation of the environment and benefit the tourism industry.

Many of the initiatives backed by PPI already anticipate the application of elements of the new sanitation law, such as projects in the area of ​​solid urban waste supported through FEP-CAIXA (Federal Fund for Concessions and PPPs administered by Caixa Econômica Federal) and the initiatives undertaken by BNDES (Brazilian Development Bank) to structure blocks of municipalities aiming at carrying out concession projects or PPPs in the areas of water distribution and sewage service.

Federal Government endorsement for these subnational initiatives is provided for in Decree 9036/2017, which indicated the basic sanitation sector as one of the public policies of national priority and allowed official credit institutions whose presidents are members of the PPI Council (BNDES and Caixa Econômica Federal) to support the structuring and development of projects related to the sector.

 

What changes with the new regulatory framework?

Clearer rules. Bill 4162/2019 provided the Brazilian National Water Agency (ANA) the competence to develop national regulatory reference standards for public basic sanitation services. The objective is to bring more legal certainty and regulatory uniformity to the sector, as well as to promote best practices.

Today, regulations are issued by more than 50 municipal, state and regional agencies that do not always work together, which can lead to insecurity for investors due to divergent regulatory decisions.

End of “program contracts”. The new regulatory framework prohibits so-called “program contracts” for the provision of public basic sanitation services. This type of contract could be signed directly between state-owned sanitation companies and municipalities without a bidding procedure. The change introduced by the new bill helps enhance competitiveness in the sector, which can contribute to promote efficiency in state-owned companies and to increase the presence of private agents. It also became mandatory to meet investment and service quality goals.

Privatization. Bill 4162/2019 also innovates by facilitating the privatization of state-owned sanitation companies. The previous legislation made it difficult to dispose of a controlling interest in a public company or a mixed-capital company.

Regionalization. The ownership of the services may be exercised by the states, together with the municipalities, within the regional units in which the state territories will be divided, as well as in the metropolitan regions, for the provision of services that are characterized as a “public function of common interest”. These services are defined by the need to share operational facilities that serve more than one municipality.

The new bill also provides for the establishment of reference blocks for the regionalized provision of public basic sanitation services, stimulating partnerships with the private sector.

The Federal Government will have an important role in structuring these blocks and in carrying out feasibility studies, as well as in supporting subnational entities in the entire structuring of privatization, concessions and PPPs projects. The Federal Government will also prioritize municipalities that choose blocks and regionalization of services when it deliberates about projects financing and resources allocation.

Governance. Bill 4162/2019 creates the Interministerial Committee on Basic Sanitation (CISB), chaired by the Ministry of Regional Development, to ensure the implementation of the federal basic sanitation policy and to coordinate the allocation of financial resources.

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