Decree should remove lock for sanitation PPPs and extend deadline for regionalization – 03/31/2023 – Market

The federal government must remove the limit of 25% of contracts in the sanitation sector for PPPs (Public-Private Partnership). The change is foreseen in the draft of the decree that must be signed by President Luiz Inácio Lula da Silva (PT), changing the framework that regulates the sector.

The lock was created during the government of Jair Bolsonaro (PL), in 2021, and will cease to exist from the publication of the new text, which may happen this Friday (31) in an extra edition of the DOU (Official Gazette) or even Monday (3).

The changes were negotiated by the Ministries of Cities and the Civil House with representatives of private, municipal and state companies.

The new decree will also benefit companies that maintain contracts with more than 1,100 cities.

These companies have not yet been able to prove their technical and financial capacity to carry out investments, or they are municipal sanitation companies that have not been regionalized – regionalization allows them to receive public funding.

The deadline for regionalization ends this Friday (31) and should be extended to the end of 2025.

Regionalization is the joining of several cities into a single contract, which increases the scale of the service and allows for a kind of cross-subsidy, with more profitable contracts compensating for losses in cities where it is not economically feasible to invest in basic sanitation.

The changes will all be made by decree and the government anticipates that no further changes will be necessary via a bill.

In the case of lack of a technical and financial plan, companies must have until 2024 to present the necessary evidence and, thus, maintain their service provision contracts.

The requirement for proof of technical and financial capacity aims to ensure that public companies are able to invest in the expansion of basic sanitation. The federal government has the goal of universalizing access by 2033.

Universalization consists of providing water for 99% of the population and sewage collection and treatment for 90%. The goal was defined in the approval of the new sanitation framework, in 2020.

The government is still evaluating a change in sanitation rules that could benefit state companies in the direct provision of services in the sector.

A wing of technicians on Lula’s team defends that, in the case of a micro-region, the state and the municipality can be considered holders of the service. Therefore, there could be a loophole for state companies to provide services without bidding – as a direct provider.

The change in the rules will give new life to Embasa, the state water and sanitation company in Bahia, the state governed by Jerônimo Rodrigues (PT), an ally of the Minister of Civil Affairs Rui Costa.

The state-owned company from Bahia has expired its program contract with the municipality of Salvador, creating a precarious relationship between the parties. Without compensation, the city hall suspended the payment of water bills from municipal bodies.

Embasa is looking for an institutional solution to remain responsible for supplying water and sanitation in the capital of Bahia, without having to face a bidding process with competition from private companies.

Salvador represents about 35% of the company’s gross revenue and the assessment is that, without its main customer, the state-owned company would lose value.

The governor of Bahia, Jerônimo Rodrigues, and the mayor of Salvador Bruno Reis (União Brasil) should meet in the coming weeks to seek a consensus solution.

A Sheet found that the government of Bahia offered BRL 300 million to the city hall for the renewal of the contract, plus direct investments in water and sanitation infrastructure.

The city hall, however, has defended the creation of a subsidiary to manage the concession of water and sanitation services in Salvador, in which it would occupy boards and would have a stake of at least 15%.

The mayor of Salvador, Bruno Reis, advocates that the situation be resolved quickly and says he is open to a partnership with Embasa. On the other hand, he says that he is also studying the possibility of bidding for the concession of the system together with the neighboring cities of Camaçari and Simões Filho.

In a note, Embasa stated that the provision of services in Salvador is legitimized by a pre-existing contract and that negotiations have begun in order to agree new terms with the municipality, which will guarantee new investments, expansion and improvement of services.

The state-owned company also pointed out that, according to the Sanitation Legal Framework, “the bidding is not compulsory in cases where the provision of services is carried out on a regular basis, as in Salvador”. And he highlighted that he seeks a long-term consensual solution with the municipality.