The narrative has been gaining strength in the political news in recent days that the elected government transition team, led by Luiz Inácio Lula da Silva (PT), intends to make changes to the Sanitation Framework. Among the main changes suggested by the members of the Cities group, currently composed of federal deputy Guilherme Boulos (PSOL) and former governor of São Paulo Márcio França (PSB), is the repeal of regulatory decrees involving the sector.
One of these decrees prevents, for example, state and municipal companies from signing contracts in the sanitation sector without bidding. These agreements were predominant in recent decades and generated a series of relationships in which public sanitation companies did not have the financial conditions to invest in the development of infrastructure to offer basic sanitation and water supply services to the population.
The transformation in question, stipulated in 2020, together with the goals imposed by the Marco (of reaching 2033 with 99% of the Brazilian population having access to drinking water and 90% having access to sanitation), has been pressuring state-owned companies to find ways of capitalizing – which includes privatization processes.
According to the National Sanitation Information System (SNIS), in 2009 only 85% of the Brazilian population had access to water and 52% to basic sanitation.
Due to the imposition, governors have already signaled, for example, the intention to privatize Sabesp (SBSP3), to Copasa (CSMG3) and Sanepar (SAPR11), but analysts are already keeping an eye on possible changes if there are changes in the sector.
Sabesp, Copasa and Sanepar further away from privatization
“If we have the change in the Sanitation Framework, it will be bad, a step backwards. It was an initiative that attracted private investment, including from abroad. This private participation, however, does not seem to be of interest to the new government, which wants an increase in the participation of the state and state-owned companies”, explains Anderson Meneses, CEO and founder of Alkin Research. “State companies don’t have the investment level, they don’t have money, and they will hardly be able to reach the target”.
The amendment presented by the transition team removes the pressure from the state-owned companies regarding possible capitalization processes, since these companies will continue to be able to sign contracts without financial consideration.
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“The change in question depends on congressional approval and I imagine it could be blocked. For now, this is speculation. As much as the Government has this idea of moving forward with state power and curbing private initiative, there is the contradiction that we will have, with this, a social impact. The population would not be able to be served”, adds Meneses.
Itaú BBA, in a report, goes in the same direction. “Since the approval of the new Sanitation Law in 2020, the concessions in force must be auctioned when the contracts expire. This was a fundamental change for the sanitation sector, opening up the market for private investment. In the past, state companies managed to renew these contracts for 30 years, even when the population was poorly served in the services offered”, comments the team of analysts headed by Marcelo Sá.
Other changes to the Sanitation Framework
The transition team, also according to the BBA, is also discussing the imposition of a clause that prevents the maintenance of old contracts in the event that state-owned companies are privatized, imposing a renegotiation or replacement.
This, for specialists, makes such transactions uninteresting for companies such as Sabesp, Sanepar and Copasa. The review of the bidding contracts in force would drive away investors or, at least, would considerably lower the price of the companies.
Finally, the specialists also draw attention to the fact that the transition team wants to transfer the regulation of the sanitation sector to the National Agency for Water and Basic Sanitation (ANA) and transfer it to the Ministry of Cities, which would bring legal uncertainty and drive away private investment.
“The sector must be regulated by an independent regulatory agency that enforces the obligations provided for by law, applying penalties to companies/municipalities that do not comply”, says the BBA. “The regulatory agency ANA is vital to create a favorable environment for investments, mainly because the granting powers in the sanitation sector are decentralized”, defend the Bradesco BBI specialists, headed by Francisco Navarrete.
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Analysts argue that nowhere in the world does an infrastructure sector flourish without a technical regulator, which has the role of creating frameworks to make investments in the sector viable. The transfer of regulation to the Ministry of Cities would place the norms as “meeting the ongoing government”.
A counterpoint: Change can be positive
Despite bringing possible advances in the social sphere, there are market analysts who see the Sanitation Framework bringing negative impacts to state-owned companies. This is the case of João Daronco, an analyst at Suno Research, for example.
“From my point of view, the Sanitation Framework is interesting because it opens up new markets, but there are counterpoints. Companies will need, for example, to make more investments, allocating a good part of their cash generation to this, and will probably reduce their dividends”, he argues.
In addition, according to him, the new regulations oblige state-owned companies to cover new areas, including regions with low demographic density, which are less profitable.
“It is much more profitable to offer water and sanitation services in populous cities, with smaller networks serving more people”, he contextualizes. “To conclude, the Sanitation Framework can be a payout and still result in lower profitability”.
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