Lula must change the sanitation framework to allow state-owned companies without bidding

President Luiz Inácio Lula da Silva (PT) signs this Wednesday afternoon (5), in a ceremony scheduled for 4 pm with the presence of governors, two decrees that change the legal framework for basic sanitation, approved in 2020, in the government of his predecessor, Jair Bolsonaro (PL).

One of the most controversial changes in the new decrees will be the possibility of providing services by state-owned companies in metropolitan regions, urban agglomerations or micro-regions without the need for bidding.

Enacted in July 2020, the sanitation framework stimulated competition in the sewage collection and treatment and drinking water supply market, with devices that precisely established the prohibition of contracts without bidding between municipalities and state sanitation companies.

The legislation boosted private investment in the sector. Report by People’s Gazette showed that, by April 2022, 16 auctions had been held covering 217 municipalities, reaching 20 million people. The contracts provide for investments of BRL 46.7 billion, in addition to the payment of BRL 29.5 billion in grants.

The framework also established goals for the universalization of sanitation services by 2033, with a minimum supply of water to 99% of the population, and access to sewage collection and treatment for at least 90% of households.

Another alteration that the Lula government is going to promote in the legislation is the end of the 25% limit for the realization of Public-Private Partnerships (PPP) by the states, which, in practice, will allow the maintenance of contracts between public companies and city halls, even services are provided by the private sector, on an outsourced basis.

Since the entry into force of the sanitation legal framework, the Bolsonaro government has edited two decrees to regulate the text. One of them established the methodology for proving the economic and financial capacity of sanitation companies.

By rule, 1,113 municipalities, which bring together 29.8 million Brazilians, had contracts with state providers declared irregular and, therefore, could not count on federal funds to seek universalization.

After the approval of the legal framework, four lawsuits were filed at the Federal Supreme Court (STF) asking for the suspension of the law, two of them filed by leftist parties: one by the PDT and another jointly by PCdoB, PSOL and PT.

The other two were filed by the National Association of Municipal Sanitation Services and by the Brazilian Association of State Sanitation Companies. In December 2021, by 7 votes to 3, the STF considered the text of the legal framework constitutional.

In December 2022, even before taking office, the Chief Minister of the Civil House, Rui Costa, stated in a press conference that the new government intended to revise the legislation – which, according to him, would have stopped works in the area.

In the final report of the Cities technical group of the governmental transition cabinet, its members suggested that the possibility of public sanitation companies signing contracts without bidding with municipalities – the so-called program contracts – be resumed.

A note distributed by the Planalto Palace states that the new methodology will allow providers responsible for the sanitation service in 351 municipalities to prove their economic and financial capacity and, in this way, avoid the interruption of investments. The text says that another 762 cities, which had been excluded by the previous methodology, may also be included in the verification process, to avoid suspension of services or investments.

“All this with strict supervision. Regulatory agencies will monitor the achievement of goals with transparency. Those who do not meet the targets will be prevented from receiving public funds,” says the statement from the Planalto.

According to the newspaper “O Globo”, one of the main beneficiaries of the new changes will be Embasa, the state sanitation company in Bahia, a state where Costa was governor until December 31 and which is now governed by Jerônimo Rodrigues, also from the PT. The company has an expired contract with the capital Salvador and intends to maintain it through a PPP.

One of the decrees that Lula will sign will extend to December 31, 2025 the deadline for municipalities to organize themselves into regional units to gain access to federal funds. The previously established deadline was March 31st.

According to the government, 2,098 municipalities, with a population of 65.8 million inhabitants, are still not regionalized and would be prevented from accessing federal resources for sanitation actions. Still according to Planalto, the changes promoted by the new decrees will allow investments of R$ 120 billion until 2033.