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Articles - 22/09/20

Brazilian New Legal Framework for Basic Sanitation: What has really changed?

The New Legal Framework for Basic Sanitation, Law n. 14.026/202, was signed on July 15 by President Jair Bolsonaro. The draft, approved by Congress after lengthy discussions on the topic, has several relevant modifications, and sets out the goal of providing universal water and sewage services in all of Brazil by the end of 2033.

The initiative approved by Congress and signed by the President modified and updated the legislation dealing with the issue of basic sanitation in the country. In this context, it is helpful to understand the main changes introduced by the New Legal Framework.

  1. Service Contracts Form and Requirements

The previous contracting model in force between the cities’ and states’ water and sewage companies was withdrawn. The previous rules required companies to follow pricing and provision of services criteria, but did not provide for free competition between companies in the sector. The so-called “program contract” was signed between the cities directly with the states’ water and sewage companies.

The new legislation changes the dynamics of this market providing for mandatory bids, involving public and private companies. As for the current contracts, these can be transformed into new concession contracts, so long as there is a bidding process for the concession of services or sale of the controlling shareholding of the state-owned provider to private companies. The goal is to encourage free competition, competitiveness, economic sustainability, and efficiency in the provision of services.

As for current contracts, the law states that they may continue through their scheduled final term, provided that the companies’ economic and financial capacity is proven, which must also comply with the requirements set out in the New Legal Framework. The methodology related to this proof of the contractor’s economic and financial capacity, with the purpose to establish universal services available in the bid area by December 2033, will be published within 90 days, so that companies can censure conformity of their existing contracts with these new parameters by March 30, 2022. There appears to be an attempt to anticipate the expiration term of these contracts, using the idea of financial economic capacity.

Contracts related to the provision of public basic sanitation services must present essential clauses provided for by law (art. 23 of Law nº 8.987/1995), in addition to specific provisions that should address service expansion goals, possible sources of alternative revenues, methodology for calculating any indemnity related to reversible assets not amortized at the of termination of the contract, and risk sharing between parties.

  1. Universal Provision of Services Goals

The New Legal Framework establishes as a goal, both for current contracts and for those signed after the law was signed, the duty of companies to expand the supply of water to 99% of the population and the collection and treatment of sewage to 90% of the population by December 2033.

The demonstration of economic capacity to fulfill the task within the period set out is a prerequisite for the validity of the contract, as well as for those contracts signed prior to the Legal Framework, which need to conform to these new requirements.

  1. Preference for a Regionalized Service

Another significant change relates to assistance to small cities, which generally have fewer resources or limited sanitation coverage.  This is important to ensure that companies to not only focus on locations with higher profitability.

Before the New Legal Framework, there was a cross-subsidy system in place, in which large cities served by a company would assist to expand the service so it could reach small cities, more remote and with less resources.

The provisions of the New Legal Framework makes it possible for states to form groups of cities, which may collectively hire the services. The adherence to these groups is voluntary and with the extinction of the cross-subsidy, collective barging becomes a key factor to reach the universalization goal in peripheral and unprofitable areas.

  1. Regulation

The National Water and Basic Sanitation Agency, Agência Nacional de Água e Saneamento Básico (ANA), will have an important regulatory role, being responsible for the creation of reference standards for the regulation of basic sanitation services.

To exercise its competence, ANA must consider local and regional peculiarities when implementing methods, techniques, and processes so as to encouraging the regionalization of the services, in addition to prioritizing economic freedom and competition.

  1. Public Policies

A collegiate body was created to oversee,  formulate and implement public policies on basic sanitation. The Inter-ministerial Committee on Basic Sanitation, Comitê Interministerial de Saneamento Básico (Cisb), will ensure the implementation of the federal policy on basic sanitation. Cisb shall improve the dynamics between federal agencies that operate in the sector, and it shall also coordinate the allocation of financial resources.

  1. Subsidies and Dumps

As is established in the New Legal Framework, low income families will have access to some subsidies such as discount on tariffs and free connection to the sewage network. The deadlines foreseen in the Solid Waste Policy (Law 12.305/2010) were also extended for cities to put an end to open-air dumps to ensure environmentally appropriate final disposal of waste. The capitals of states and cities in the metropolitan region have until August 2021 to perform this task. The deadlines for cities with a population of less than 50,000 citizens is until August 2024.

List of Laws Modified by the New Legal Framework for Basic Sanitation

  • Law No 9.984/2000: amended to give the National Water and Basic Sanitation Agency (ANA) the power to change reference standards on the sanitation service;
  • Law No 10.768/2003: changes the name and duties of the position of the Water Resources Specialist;
  • Law No. 11.107/2005: prohibits the provision of a public service program contract that deals with art. 175 of the Brazilian Federal Constitution;
  • Law 11.445/2007: amended to improve the structural conditions of basic sanitation in Brazil;
  • Law 12.305/2010: amended to deal with deadlines for environmentally appropriate final disposal of tailings;
  • Law No 13.089/2015 (Statue of the Metropolis): it was amended to extend its scope to the micro-regions; and
  • Law No 13.529/2017: authorizes the Federal Government to participate in a fund with the sole purpose of financing specialized technical services.