Public Law Newsletter: New regulatory framework for sanitation is approved in the senate and proceeds to presidential sanction

26th June

The Bill 4,162/2019, labeled a new regulatory framework for sanitation, after two years of discussions, was approved in the Senate by 65 votes to 13. After the approval, the Bill shall be subjected to the sanction of President Jair Bolsonaro.

In the current scenario, the provision of services is ineffective and carried out mainly by state-owned companies. The new legal framework aims to increase competitiveness, having as its main objective the universalization of sanitation, by collecting sewage for 90% of the population and supplying drinking water to 99% of the population by the end of 2033.

The Bill’s main points are:

Ownership of public sanitation and regionalization of services

The clear definition of who is the holder of a particular public service is of paramount importance to those who intend to engage in a partnership with the Public Power, so that the contractor can be certain that the party has the necessary competence to be granted the rights to operate the object of the partnership.

The Bill establishes that municipalities and the Federal District, in the case of local interests, have ownership of public sanitation services;  and the States, along with the municipalities that effectively share operational facilities that are part of metropolitan regions, urban agglomerations, and microregions, instituted by complementary state law, in the case of common interests.

The Bill also allows the establishment of regionalized blocks of municipalities to obtain gains in scale and ensure the economic and financial viability of services to achieve the universalization of services; thus, enabling the regional organization, while taking into account local peculiarities.

Regionalization may be the best response to the provision of basic sanitation services, considering that 4/5ths of the Brazilian municipalities have less than 30,000 inhabitants and cannot sustain such provisions by itself[1].

Besides, the Bill also allows the creation of public consortia and cooperation agreements between neighboring municipalities to provide services.

Mandatory bidding procedure

Another point of great importance in the Bill is the obligation to hold bids for the delegation of services, which can no longer be signed by the so-called program contracts for the provision of water supply and sewage services.

This type of contract is what is currently adopted by state-owned sanitation companies. Such contracts are signed without a competition procedure and are concluded directly between service holders and concessionaires. But until 2022, state companies can renew program contracts with the municipalities, if the ability to achieve the set goals is demonstrated.

The Bill also establishes the possibility of selling the control of state-owned companies, and the existing program contracts may be subject to the process of a transfer of control with the approval of the service holders.

By determining a bidding process, with the end of the preemptive right of state-owned companies and with increased competition, private investments shall be stimulated.

Ampliation of the powers of the National Water Agency (ANA)

The Bill assigns to the Natural Water Agency (ANA) the competence to develop national regulatory reference standards for the basic sanitation sector, aiming at regulatory uniformity throughout the country.

Thus, ANA should establish reference rules concerning: (i)  quality standards and efficiency in the provision, maintenance, and operation of basic sanitation systems; (ii)  standardization of contracts for the provision of public basic sanitation services; (iii)  tariff regulation of public basic sanitation services; (iv) criteria for regulatory accounting; (v) progressive reduction and control of water loss, among others.

In summary, the idea is that ANA will institute general rules for regulating the provision of services at the national level, which may allow standardization and greater legal certainty for companies that are interested in investing in the sector. Also, the greater regulation of services by the Agency may offer technical support to states and municipalities for the planning and execution of services, allowing more constant supervision by civilians regarding the quality of services that are provided to them.

Solid waste – end of dumps

The Bill extends the deadline for the end of dumps, granting additional time for municipalities to carry out such eradication and to dispose of municipal solid waste in landfills.

It should be mentioned that the current law provided that dumps should have been eradicated in 2014, which did not occur and there was an extension to December 31, 2020.

But this deadline will not apply for municipalities to create an “intermunicipal solid waste plan or a municipal plan of integrated management of solid waste, which shall have collection mechanisms that ensure their economic and financial sustainability”.

For these cases, the deadlines will vary from August 2021 to August 2024, depending on the location and size of the municipality. This facilitates the concession of state-owned companies to the private sector, which also tends to increase the competitiveness of this market.

Environmental licensing

The competent environmental authority shall ensure priority and establish simplified licensing procedures for the activities of sewage treatment units, effluents generated in water treatment processes and facilities that are part of public solid waste management services

According to the proposal, it will be up to the municipalities to promote the environmental licensing of basic sanitation activities, enterprises, and services.

In conclusion, the Bill brings several improvements to the rules of the regulatory framework for basic sanitation, which will expand private investments in this sector. It is estimated that to achieve the universalization goals of the Bill,  investments of almost R$ 700 billion shall be required. These have the potential to attract large investments (national and international) and increase the generation of jobs in the country.

[1] MINISTRY OF CITIES (MCIDADES). National Secretariat for Environmental Sanitation. Sanitation Sector Modernization Program (PMSS) Concepts, characteristics and interfaces of public services sanitation / coord. Berenice de Souza Lamb. – Brasilia: Publisher, 2009. 193p. (National Basic Sanitation Law: perspectives for policies and management of public services; v.2)

Authors: Eduardo Nobre, Paula Padilha Cabral, Natalia Muniz de Melo

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