Brazil's lower house partially vetoes water regulations update

Brazil’s lower house partially vetoed a government-promoted regulatory update for the water sector, underlining challenges the administration is facing.

An April decree strengthened state utilities’ ability to keep existing contracts and implemented provisions for public-private partnerships.

But lawmakers vetoed the provisions for state utilities, forcing them to participate in tenders after contracts expire. The utilities also must keep providing proof of capacity to invest and expand services.

Although the sector is still dominated by state firms, private utilities gained ground after local governments launched tenders in the wake of a regulatory overhaul in 2020. The overhaul mandates universal coverage by 2033.

The lower house veto is now being debated in the senate. It was approved even by ruling coalition parties, highlighting the limits of support for the government.

"This lower house veto shows that the government is disorganized, first in relation to the lack of obtaining majority support in congress and second because the government is having difficulty choosing priorities," Mário Sérgio Lima, senior political analyst at Medley Global Advisors, told BNamericas. 

"The sanitation rules were well designed, it was a mistake by the government to try to change this to meet a demand of a portion of its voter base, which is workers in state-owned companies in the sector, who want to maintain certain privileges, but have a series of inefficiencies," said Lima.

The government also seeks to advance this year a tax reform, which is highly controversial and demands major congressional support.

José Guimarães, the government’s nexus in the lower house, recognized the a reassessment of the relationship with congress is needed to detect fissures in the support base.

"The vote here in the chamber shows that we have to put a brake on housekeeping within the government. The leaders [of other coalition parties] who filed a complaint against the government will have to decide whether or not they are the government," Guimarães tweeted.

CONCESSIONS, PPPs

Meanwhile, Pernambuco state and development bank BNDES signed a contract to carry out studies for structuring the privatization of water services. Pernambuco wants to guarantee universal access by 2033.

"The project's structuring will have as main lines the universalization of services in the shortest possible time and the maximization of the number of municipalities and people served. According to the national sanitation information system, 83.6% of Pernambuco’s [residents] have access to treated water and only 30.8% to sewage collection. In addition, the loss rate in water distribution is around 46%," BNDES said in a statement.

Most of the state’s localities are served by Compesa.

BNDES is also supporting Sergipe state to structure a concession to be offered later this year, aimed at attracting 6-7bn reais (US$1.2-1.4bn) to expand water services, Bruno Nunes Sad, the state’s concessions and PPP head, told BNamericas in a recent interview.