Brazil updates sanitation sector regulations in favor of PPPs

The Brazilian government has made a regulatory update for the sanitation sector to boost the number of public-private partnerships.

In a statement, the government said it expects the two decrees it issued to help attract 120bn reais (US$23.8bn) in investments through 2033, mostly via PPP contracts. 

Since a new regulatory framework was approved by congress in mid-2020, there has been a series of sanitation concessions by local governments that have seen private firms gain ground in a sector strongly dominated by state-owned companies.

"I now expect the participation of the private sector to be more operational through PPPs than via concessions," Christianne Dias Ferreira, former head of water regulator ANA and a partner at infrastructure-focused advisory firm Vallya, told BNamericas. 

The government’s new decrees are strengthening the PPP model by removing a key limitation for state-owned firms.

Before the change these firms could have a private partner for their operations, but only up to a maximum of 25% of the contract value or annual revenue.

"Private sanitation operators see the end of the 25% limit as progress since it provides yet another investment option to expand sanitation coverage in the country," Percy Soares Neto, president of the Brazilian association of water and sewage concessionaires (Abcon), told BNamericas.

CONCERN 

The decrees have caused some concern because they make it easier for municipalities and state-owned firms to fail to meet the country’s universalization goals for the sanitation sector, said Ferreira.

Under the previous rules municipalities and companies that provided services in a specific area had to periodically prove their annual investment capacity to reach the goal of full water and sewage coverage for all inhabitants by 2033. Failure to do so could lead to local governments losing access to federal funding. The government said that 1,113 municipalities with 29.8mn inhabitants will now once again have access to funding that had been blocked by the previous administration.

PRIVATIZATIONS

The decrees are in line with the economic policy of the administration of President Luiz Inácio Lula da Silva to boost public investment in the overall infrastructure sector.

This view is not shared by some state governments, which aim to press ahead with plans to privatize their water companies.

São Paulo governor Tarcísio de Freitas said this week at an investor event organized by local bank Bradesco, that he will soon sign a contract with World Bank to structure the privatization model for Sabesp, which is the country's largest water firm.

The Minas Gerais government also plans to privatize its water company, Copasa.

"The privatization of Copasa is one of the state government's current priorities. In the coming months we will likely submit the privatization model that we favor for evaluation by the state legislators," Fernando Passalio de Avelar, Minas Gerais’ secretary of economic development, told BNamericas.