Brazil’s basic sanitation regulatory framework

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Liliam F Yoshikawa

Machado, Meyer, Sendacz e Opice, São Paulo

lyoshikawa@machadomeyer.com.br

Camila de Carli Rosellini

Machado, Meyer, Sendacz e Opice, São Paulo

crosellini@machadomeyer.com.br

In July 2020, Brazil’s President, Jair Bolsonaro, signed Law No 14,026/20, which originated from Bill of Law No 4,162/19, establishing a new regulatory framework for the country’s basic sanitation. The aim of the new legislation is to attain universal access to basic sanitation services by the year 2033: 99 per cent of all Brazil’s households with water supply and 90 per cent with sewage disposal and treatment. The new regulatory framework also changed other relevant laws in the sector, such as Law No 9,984/00, which had created the National Water Agency (ANA), and Law No 11,445/07, the national guidelines for basic sanitation.

Brazil’s government estimates the new water and sanitation projects will require more than BRL500bn (approx. US$90bn) in both private and public sector investment.

The new regulatory framework stipulates that the ANA will be responsible for the setting standards regulating basic public sanitation services. All other subordinated regulatory and supervisory entities, such as the Arsesp (Regulatory Agency for Energy and Sanitation of the State of São Paulo) and the Agenersa (Regulatory Agency for Energy and Sanitation of the State of Rio de Janeiro), shall act in a compatible manner with these guidelines. The ANA is responsible for: (1) sanitation quality and efficiency standards; (2) the tariff regulation of these public sanitation services; (3) standardisation of the trading instruments for the provision of public basic sanitation services; (4) the methodology for calculating the compensation due on account of the investments made but not yet repaid or depreciated; and (5) the reuse of treated effluent, among other matters.

The regulations to be issued by the ANA are to stimulate free competition, competitiveness, efficiency, and economic sustainability in the provision of services, providing universal access to sanitation in Brazil.

Other relevant changes which have been discussed for years include the compulsory bidding process and the proof of economic and financial capacity to achieve objectives. The provision of new sanitation services by an entity that is not part of the local government authority’s administration which holds the services will now be carried out through a concession agreement, subject to participating in a public bidding process. Programme agreements are expressly forbidden, as are other risky instruments for contracting public services, such as partnership agreements and conventions.

Law No 14,026/2020 reproduces the provisions of Law No 9,307/96 (Arbitration Law), which already applied in some cases, regarding the use of private mechanisms for the dispute resolution arising out of or related to the contract, including arbitration, since they are performed in Brazil and in Portuguese. Moreover, providers not holding the sanitation services will retain the right to delegate the subject matter of the agreement up to 25 per cent of the agreement’s value, provided there is a provision in the concession agreement or express authorisation from the holder of the services. The specified limit may be exceeded in the case of local government authorities in metropolitan regions which are conducting studies for concessions, or that have public-private partnerships (PPPs) in progress, and signed the delegation agreement within a year of publication of the law.

The delegation of the contract shall only occur on technical proof of the efficiency and quality of the services by the person delegating them. The delegation agreement must be preceded by a bidding procedure, which may have the purpose of providing sanitation services for one or more agreements.

Another relevant provision is the possibility of regionalising sanitation services under the responsibility of Brazilian states. To make it more attractive, two or more local government authorities may be part of the same bidding process, given the considerable technical and financial difficulty smaller municipalities face in carrying out the bidding process and attracting investors. The federal government may be responsible for establishing basic regional sanitation units, by joining two or more local government authorities, if a state fails to do so within a year of Law No. 14,026/20’s publication.

There is also a change to provisions regarding the environmentally acceptable disposal of waste, which has a deadline of 31 December 2020. This affects all municipalities, except those which have already developed an inter-municipal solid waste plan or municipal plan for integrated solid waste management. In these cases, the capital cities of metropolitan regions need to meet the deadline of 2 August 2021, while municipalities with populations greater than 100,000 inhabitants and those whose urban area of the municipal district is less than 20 kilometres from the border have an extra year, until 2 August 2022, to comply. Municipalities with between 50,000 and 100,000 inhabitants and those with populations of less than 50,000 have two and three more years, respectively, that is, they must meet these targets by 2023 and 2024.

In the event of the sale of a controlling interest in a government-controlled company or mixed-capital company providing basic sanitation services, the concession or programme agreements to which they belong may be replaced by new concession agreements. In cases of adjustment of term, subject matter, or other provisions at the time of sale, the replacement of these agreements will require consent from the public entities which formalised the original agreements. Such entities will have 180 days from the receipt of the proposed amendment to reject the request. Otherwise, their consent to the proposal will be deemed given.

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