Public Law, Project Finance and Regulatory

Ripples of concern in Brazil’s sanitation sector over possible regulatory changes

Some of the members of Brazilian president-elect Luiz Inacio Lula da Silva’s government transition team want to review certain points in the existing regulations on the sanitation sector, causing concern among stakeholders.

“It’s always a concern when there’s the possibility of changes to a regulation that was approved not long ago,” Paulo Dantas, an infrastructure and project finance specialist at law firm Castro Barros Advogados, told BNamericas.

“It’s a fact that the sanitation area needs a lot of investment in Brazil and that will only happen with the public and private sectors acting together side by side, “he added.

The transition team, established by Lula after he defeated President Jair Bolsonaro in the October election, is formed by dozens of advisers who are preparing diagnoses of the main sectors of the economy and proposing measures to be implemented by the new government after it takes office on January 1.

The sanitation sector has undergone a major transformation after legislation was approved in mid-2020 allowing various changes to facilitate investments by private sector companies in an industry previously dominated by state-owned companies.

Now, some of the transition team are proposing certain changes to the existing regulations, according to a member of the team consulted by BNamericas, who declined to be named.

The changes proposed include reducing the power of national water regulator ANA, returning some of its regulatory functions to states and municipal watchdogs.

“A national regulatory agency on a national scale needs to be strengthened and not weakened. All sectors that attract private investment in the country have a strong regulatory agency,” said Dantas.

Another point suggested for review is to allow city halls to contract sanitation services without a bidding process, a measure that could favor state-run sanitation firms. This was the case prior to the regulatory changes in 2020, which meant that many cities automatically opted to sign contracts with companies from the public sector.

Under the current regulations, all cities are obliged to contract sanitation services via tenders, facilitating the involvement of private sector players.

Members of the transition team looking at the regulations for the sanitation sector include elected federal lawmaker Guilherme Boulos of the leftist party PSOL and Marcio Franca, the former governor of Sao Paulo state.

The recommendations made by the transition team will not necessarily be followed by Lula when he takes the reins of the government, but these suggestions also raise doubts about the progress of the privatizations of state-owned companies planned by state governments.

“It is important to note that any regulatory change won’t affect existing contracts with private sector companies, and another key point is that the recommendations made by the transition team will not necessarily be followed by the president-elect. | think there’s still a long way to go for debate within the government elect itself and also in congress before any changes are actually made,” said Dantas.