Awaited since November of 2017, the Sanitation Presidential Decree was finally promulgated on July 9. Despite the differences with respect to the versions submitted for public consultation, the rule maintained its foundations, which, if confirmed via its conversion into law, will increase the participation of private enterprise in the sector, thus favoring the structuring of new projects.
Initially, the Presidential Decree reconfigures the National Water Agency (ANA), giving it new functions. It is worth mentioning the jurisdiction to issue national reference standards for the regulation of basic public sanitation services. These rules will have the potential to reduce the regulatory patchwork that afflicts the sanitation sector, in which each municipality has the autonomy to prepare its own contractual modeling solutions. Perhaps the only existing standard is established by the most consolidated state companies in the restricted regions where they operate. Regulatory uniformity and legal certainty were old demands of investors and financiers, interested in mitigating transaction costs that often jeopardize ventures.
To ensure the effectiveness of national reference standards, it is essential to condition access to federal resources and financing granted by entities controlled by the Federal Government on compliance with established standards: states and municipalities, or companies that contract with them, when they resist compliance with ANA, may be deprived of onlending and credit lines, without which few sanitation projects are financially viable.
ANA also becomes a mediating and arbitration body for the public administration: in the event of conflict between municipalities, states, and/or their respective regulatory agencies and public sanitation service providers, the national agency may operate through voluntary and consensual submission of all those involved to a true and specialized permanent arbitral tribunal, aimed at resolving regulatory and/or jurisdictional conflicts, especially among states.
Another innovation of the Presidential Decree refers to metropolitan regions, urban agglomerations, and microregions: in them, the exercise of ownership of public sanitation services was assigned to the interfederal collective body created and constituted in light of the Statute of the Metropolis. The measure puts an end to a conflict of jurisdiction that has led to the filing of at least three direct actions of unconstitutionality against state laws on sanitation services in metropolitan areas.
In its judgments, the Federal Supreme Court then pointed to the need for states and municipalities to agree on and share decisions when there is a common interest in sanitation projects. There will also be discussion on how to structure and set up such interfederal collective bodies, especially their rules of governance regarding the right of veto by participants, deadlock situations, and financial contributions: precedents from public consortia will be useful to guide, by analogy, the modeling of agreements between participants, where it is possible, in public functions of common interest, to recognize a more decisive role for the state.
State sanitation companies can now be privatized without their program contracts automatically losing their validity, and it is up to the municipalities served by them to decide whether or not to accept the new conditions for continuity of the service. The situation is close to that of authorization by the granting authority for the transfer of control of concessionaires, under penalty of expiration of the concession contract, under the framework of Law No. 8,987/95. If there is agreement, under the model of the Presidential Decree, adherence to the new conditions operates as a true conversion of the program contract, and the instrument calling for bids serves, in whole or in part, as the basis for an addendum that significantly changes the original agreement: a contractual arrangement between the acceding municipality and the privatized state company is now qualified as a concession, and the framework of Law No. 9,074/95 can be applied, notably the provision of article 28. In the absence of consent, the municipalities reassume the services delegated, but with the obligation to indemnify the investments made and not yet amortized or depreciated. The solution given by the Presidential Decree is imperfect since the lack of voluntary compliance can lead to the issuance of a mere request to the municipalities, with its known drawbacks.
Competitive processes for the conclusion of program contracts are no longer automatically waived. Before opting for the services of a certain state sanitation company, municipalities should issue a call for bids for other companies to express interest and present a more efficient and advantageous proposal: in the event that there is at least one interested party, along with the state company, the holding of a bidding process shall be legally obligatory. This is the only rule of the Presidential Decree that is subject to a three-year vacatio legis: while all other regulations have immediate and general effect, municipalities and state-owned enterprises will have a long period to adjust their needs or business models, as the case may be, to the new competition rule.
Still far from the objectives of universalization and ecological efficiency of sanitation services, Brazil cannot do without private capital to accelerate investments in an industry that generates so many positive externalities, such as basic sanitation. Whether it is the privatization of state-owned companies, concession modeling, public-private partnerships, sub-concessions, or subdelegations, the Sanitation Presidential Decree has enormous potential to energize new projects, structured with more regulatory framework and regulatory space for smart innovations.