Lula’s decrees make universalization goal unfeasible

The decrees signed at the beginning of the month by President Luiz Inácio Lula da Silva (PT) to change the rules of the basic sanitation legal framework make the country go back to the inefficiency framework in the sector prior to the new legislation.

The opinion is shared by entities and specialists in the area, who consider that, with this, the goals of universalization of water treatment and sanitary sewage services, which have until 2033 to be fulfilled, are made unfeasible.

Sanctioned in July 2020, during the government of former President Jair Bolsonaro (PL), the sanitation framework brought stimuli to competition in the sewage collection and treatment market and the supply of drinking water.

Among the main changes, the new law allowed that, in the event of privatization of a state-owned company in the sector, the contracts in force would be maintained under the responsibility of the operator winning the auction. It was also forbidden to sign new contracts without bidding between municipalities and state sanitation companies.

The objective was to provide greater legal security for private companies to provide services and increase market competition. Another innovation was the encouragement of regionalized service, through contracts with blocks of municipalities, favoring less attractive locations for investment.

Along with the new legislation, a goal was set for the universalization of sanitation services over the next ten years, with at least 99% of the population being served with potable water, and access to sewage collection and treatment for at least 90% of the population. population.

In order to guarantee the viability of meeting the targets, a requirement was also instituted for the contracted companies to prove their economic and financial capacity and a schedule for carrying out the works.

“All of this, with the exception of the possibility of privatizing without the current contract falling, has now been changed with these decrees [assinados por Lula]”, says Diogo Mac Cord, who was national secretary for Infrastructure Development between 2019 and 2020. Current leader of infrastructure and regulated markets in Latin America South of EY Brazil, Mac Cord acted directly in the elaboration of the new sanitation framework.

The acts signed by the president on the last 5th allow state-owned companies to operate again in metropolitan regions, urban agglomerations or micro-regions without the need to participate in a bidding process. The obligation for municipalities to join together in blocks was also dropped and the need for proof of economic and financial capacity was relaxed.

“What they did with these decrees was to return to the model that already existed”, says the executive. “If you take the historical curve of investment in basic sanitation, you will see that we advanced around 1% a year in water and sewage services. So it would take decades to universalize at the pace that depends exclusively on public resources”, he says.

State sanitation companies were spending more on wages than on investments

A study produced for the National Confederation of Industry (CNI) shows that, in the period prior to the new milestone, the ratio between investments and personnel expenses dropped considerably in 25 state sanitation companies. In 2010, the ratio was 1.12, while in 2019 it was 0.52. In other words, state-owned companies were allocating less money to investments and more to paying salaries.

“The trajectories of personnel expenses and investments in the CESBs call attention, in an apparent inversion of priorities in the allocation of tariff resources”, says an excerpt from the document.

For economist Claudio Frischtak, founding partner of Inter.B Consultoria and one of the consultants in the CNI study, the new decrees are, to say the least, ambiguous, “since they allow for the formalization of precarious and incomplete instruments”. According to him, the new framework still provided for the need for state-owned companies to expand investments, which ended up falling to the ground with the acts signed by the current president.

The new legislation approved in 2020 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.

“But for some time now, when people started talking about going back on everything that the milestone defined, the investments stopped”, says Mac Cord. “The governors started to wait to see what the new signaling would be”.

Opposition tries to overturn Lula’s decrees on sanitation in court and in Congress

The day after the signing of the decrees by the president, the Novo party filed an allegation of Non-compliance with a Fundamental Precept (ADPF) at the Federal Supreme Court (STF) asking for the suspension of the decrees. Last week, the leader of the opposition in the Senate, Rogério Marinho (PL-RN), asked the Court for the suspension.

So far, in Congress, three Legislative Decree Projects (PDL) have been presented that aim to overthrow Lula’s initiatives and that can be processed in aggregate form.

“The climate in the Chamber is not one of satisfaction and the possibility of voting on a PDL exists. But, always before taking a PDL forward, I have the habit of exhausting the discussion as much as possible, so that the government can review the exaggerations”, said the mayor, Arthur Lira (PP-AL), in an interview with the Canal Livre program, on TV Bandeirantes, on Sunday (16).

Change in the legal framework should delay the universalization of sanitation

Ensuring the availability and sustainable management of water and sanitation for all is one of the Sustainable Development Goals (SDGs) of the United Nations 2030 Agenda, of which Brazil is a signatory. At the time of discussion of the new sanitation framework, the deadline for universalization was extended to 2033 because it was considered that the time interval until the end of the decade was too short to meet the target.

“We have been stopped for almost a year because of this rediscussion of the rules. If we revoke these decrees and go back to what had already been defined, we can still think about that deadline of 2033. But if we continue to insist on this discussion, bringing this enormous legal uncertainty to the sector, we will have to change this goal”, says the executive from EY Brazil.

The Brazilian Association of Private Concessionaires of Public Water and Sewage Services (Abcon) released a note in which it states that Lula’s decrees “very likely” may delay the reach of universal services.

Data from the National Sanitation Information System (SNIS) indicate that the lack of treated water still affects almost 35 million people, and that around 100 million Brazilians do not have access to sewage collection. Furthermore, only 50% of the collected volume is treated. According to the Trata Brasil Institute, the equivalent of 5,300 Olympic-sized swimming pools of untreated sewage is dumped into nature every day.