8. Case study on public sanitation
This chapter presents an overview of the reform of the regulatory framework of the public sanitation sector in Brazil. The modifications are assessed using as reference regulatory management tools and practices, such as ex post evaluation of regulations, ex ante regulatory impact assessment, and stakeholder engagement activities. Additionally, the chapter provides key figures to put into context the performance of the public sanitation sector. The chapter includes policies options to further improve the regulatory framework for the sectors and reap the full range of benefits of the reforms.
In Brazil, the General Sanitation Law (Law No. 11.445/2007) indicates that basic sanitation comprises four services:
According to the WHO and UNICEF’s Joint Monitoring Program for Water Supply, Sanitation and Hygiene (JMP), 15 million people in Brazil lack of access to safely managed water in urban areas, while in rural areas, 25 million people only have basic services; moreover, 2.3 million access unimproved sources of water for drinking and personal hygiene (UNICEF, SIWI and The World Bank, 2020[1]).
In terms of sanitation, about 100 million people in Brazil live without safely managed sanitation services. About 21.6% of this population use an unimproved sanitation facility and 2.3% does not have access to any sanitation service. The JMP’s report also indicates that the largest deficits are in the North and Northeast of the country, in particular across indigenous villages, urban peripheries and informal settlements (favelas) (UNICEF, SIWI and The World Bank, 2020[1]). A relevant challenge in Brazil is in rural areas, as only 62.9% of the population uses basic sanitation services; while in urban areas, 94% does (see Figure 8.1).
Source: (The World Bank, 2020[2]).
Water and sanitation infrastructure in education facilities represents also an urgency matter in Brazil, as some states in the north of the country have less than 10% of their schools with access to sewerage systems. Furthermore, only 19% of public schools in the State of Amazonas have access to water supply (the national average is 68%). Regarding health care facilities, JPM estimates that 74.5% (excluding hospitals) had limited sanitation services by 2017. This situation exacerbates poverty and creates inequality across different sectors of population (UNICEF, SIWI and The World Bank, 2020[1]).
The Investment Partnerships Programme (Programa de Parcerias de Investimentos, PPI), an initiative linked to the federal executive, estimates that by 2033 Brazil would require BRL 600 billion in capital expenditure to universalize water and sanitation services. Currently, the private sector is responsible for 20% of the investment but holds 6% of the sanitation market, indicating that investments by the private sector are greater than those by the public agencies. Nonetheless, the consumer fees remain similar for both private and public investors (Programa de Parcerias de Investimentos, 2020[3]). Moreover, the Plano Nacional de Saneamento Básico (PLANSAB), which covers the objectives for water provisions and sanitation services, urban drainage and solid waste indicates that Brazil aims at expanding access to reach 99% water supply and 92% sewerage by the year 2033.
A new bill with a focus on sanitation aims to change the current situation and to have significant positive impacts in terms of health, education, labour productivity and preservation of the environment. According to the PPI, several projects backed by them take into consideration elements of the new sanitation law, as well as initiatives undertaken by the Brazilian Development Bank. The latter are initiatives to carry out concession projects or PPPs on water and wastewater services at municipal level (Programa de Parcerias de Investimentos, 2020[3]). The challenge is not minor, according to Sampaio and Sampaio (2020[4]), water and sanitation regulation in Brazil shall be addressed considering institutional disputes and legal uncertainty, as a complex institutional framework may play a central role in explaining the country’s performance and government's inability to secure a financially self-sustainable structure of the sector.
The government of Brazil, recognising the state of play in sanitation services, has attempted to make reforms to increase real access to such services and improve the standard of living for the population, in particular, for people leaving with minimum resources. A first attempt to reform the regulatory framework surrounding the sanitation sector was in July and December 2018 with two Law Projects (No. 844/2018 and No. 868/2018). The reform was proposed through a provisional measure (MP); however, the proposal was never voted at the National Congress. Finally, in 2019 the Law Project No. 3.261/19 that collects most of the main arguments of the previous reform attempt, was voted and approved by the Senate. Afterwards, the draft project was delivered to the Chamber of Deputies, which undertook more than 10 public hearings. In the meantime, the Executive Power drafted the Law Project No. 4.162/2019, which was linked to the discussions of the Law Project No. 3.261/19 in the Chamber of Deputies.
By December 2019, the Chamber of Deputies approved the Law Project No. 4.162/2019 and it was sent back to the Senate, which approved the final draft. Finally, the draft project was delivered for presidential approval and the President J. Bolsonaro published the Law No. 14.026/2020.
The new law aims to provide stability and legal certainty in the sector, as well as enabling domestic and foreign private investment, in order to face the sector challenges, as the universalisation of services, the improvement concession procedures and the standardization of regulation (as sanitation services are regulated locally), see Box 8.1. According to the government, fragmentation of duties and powers led to dispersed and unbalanced rules, operational inefficiencies and regulatory risks. The municipal order of government in Brazil is characterised by high levels of fragmentation: there are more than 5 500 municipalities in the country.
The Government of Brazil promotes the new law, stressing that it provides a framework to strengthen public intervention, which is municipal in the first place, but affords state involvement when there exist: 1) common interests; 2) complementary state laws; or 3) shared infrastructure. Moreover, it provides capacities to foster the regionalisation of services for metropolitan, urban areas or micro-regions. Regionalisation of services is a key element of the new law and a strategy designed by the Federal Government to achieve universalisation of services and prevent that potential service providers would focus only on the most populated areas or those with major expectation in revenues.
The Law No. 14.026/2020 introduced reforms with a strong focus on the following objectives:
Legal certainty by defining ownership of services and formalizing the sub-delegation of sanitation services through concessions or PPPs.
Coverage goal of 99% for water service and 90% of the sanitary sewer services by 2033.
Establishment of standard regulation for the sanitation sector by granting ANA with competences to establish national standards.
Participation of the private sector by prohibiting exclusionary contracts between municipalities and state-owned basic sanitation companies.
Efficiency in the implementation of sanitation projects by prioritising environmental licensing.
Universal coverage by prohibiting the distribution of profits when providers did not comply with goals and the schedules established in contracts.
Law No. 14.026/2020 grants the Brazilian regulator, the National Agency for Water and Public Sanitation (ANA) administrative and financial autonomy, in order to establish standards that decentralised regulators could adopt. Nowadays, there are about 80 local regulators using different regulatory instruments and low capacity of standardisation. Additionally, the law provides the capacity for service providers to affiliate to a regulatory agency in a different state if the local regulator does not follow ANA’s standards. In April 2021, ANA announced a regulatory agenda with a timetable for 23 regulatory standards to be published by 2023. These standards include tariff regulation, contractual instruments, regulatory accounting, system operation, quality requirements, among others.
The new regulatory framework provides the obligation to create municipal and state planning documents, which would be aligned with the National Plan for Basic Sanitation (PLANSAB) as a mean to obtain federal resources. It also allow implementing information systems for basic sanitation services linked to the National Information System for Basic Sanitation (SNIS), the National Information System about the Management of Solid Waste (SINIR) and the National System for the Management of Hydric Resources (SINGREH).
Following the publication of the Law, the Government of Brazil has published four decrees regulating aspects of inter-ministerial governance, the federal support to states and municipalities and the methodology to prove financial capacity by potential service providers.
Decree No. 10.430 Creation of the Inter-ministerial Committee for Basic Sanitation (CISB). The decree will supervise federal government’s compliance in the application of resources.
Decree No. 10.588 Regulation of technical and financial support provided by the federal government to states and municipalities, and procedures to allocate federal resources.
Decree No. 10.710 Regulation of the methodology to prove economic and financial capacity of service providers to distribute water or provide sewage services.
Decree No. 11.030 Regulation of the paths and conditions for the transition to the new contractual and regulatory framework
Following the publication of such instruments, the National Secretariat of Sanitation (NSS) is preparing a decree to regulate the new Law No. 14.026/2020. This decree should replace a former instrument regulating the Law of Sanitation. At this moment, the NSS indicates that, it is engaging with different stakeholders to collect information. The decree should cover elements of the new law as quality standards, maintenance of the system, tariff regulation, among other topics.
Regarding the regulatory agenda announced by ANA, the Ministry of Economy has provided technical support, including two projects in partnership with international and national stakeholders on contractual regulation and on indenisation of assets at contract termination.
The adoption of regulatory management tools, such as early and public consultation, Regulatory Impact Assessment (RIA), ex post evaluation and the assessment and simplification of the regulatory stock, are key elements of the strategies conducted by OECD countries and institutions to manage the quality and performance of regulation. These practices aim to improve the effectiveness in the achievement of goals of regulatory reforms. These practices have gained recognition, not only by institutions in charge to oversee quality of regulation projects but any regulator with powers to deliver public policies through regulatory instruments. This section presents a summary of practices on regulatory policy in the sector of sanitation services in Brazil.
Ex post evaluation
Main arguments supporting the new Sanitation Law are indicated in its motivations statement, which presents a brief analysis of the current situation according to key statistics of the sector. Performance observed in the sanitation sector in Brazil sector suggest that a change in the sanitation policy was needed. There was evidence that several debates, analyses and discussions among different actors preceded the reform in the search for a new policy. However, there is no evidence of a proper ex post assessment document analysing the former sanitation law, which should have led to conclude on the need for a reform with focus on specific restrictions, inefficiencies, barriers or issues generated by the former law. In contrast, the motivations statement of the new law presented a series of indicators as a proof of the weak performance of the former law, but it did not included an analysis indicating potential sources of problems, restrictions, inefficiencies or distortions – it does not imply that the latter analysis was not conducted, but there is no evidence of such work.
The need for a reform was evident, according to the diagnostic of the sector. However, the lack of a formal ex post analysis of the former law may open some risks to misunderstand the link between regulatory instruments and observed effects (evidence). Additionally, a formal ex post assessment could have brought more effectiveness in the policy design, as it may have identified more clearly specific elements to be reformed.
Regulatory impact assessment (RIA)
The regulatory impact assessment for subordinate regulation is a recent practice in Brazil. For this reason, the adoption of regulatory policy tools, such as RIA at sub-national level are not yet promoted and implemented as a consequence of an integrated strategy from the federal government.
The government of Brazil indicates that the 2020 sanitation reform was preceded by an extensive evaluation of the law conducted by the Ministry of Economy and the Ministry of Regional Development. A summary of such evaluation is expressed in the law’s project motivation statement. In general, the draft recognises that while network infrastructure for water supply covers 92.9% of the population, coverage for residual water is far from the ideal situation in Brazil. In particular, 73% of the population has access to the wastewater collection network or has septic tank. However, treatment of collected wastewater does not surpass 44.9% and the quality of the process is not guaranteed, affecting water bodies. Finally, the document indicates that deficit for water supply and sanitation accounts for 40.8 and 100.3 million of Brazilians respectively. These indicators are revealing in providing urgency in public intervention. However, there is no information on whether specific elements of the law, or the lack of some other provisions, induced or contributed to such weak performance.
The document also provides a snapshot of the composition of service providers:
68.9% state firms with mixed economy (composed by public and private capitals)
The draft indicates that the private industry is working in 6% of the municipalities but adds more than 20% of total investments in the sector. Moreover, estimates of the government suggest that achieving universal access to water and sanitation services requires BRL 22,000 million on yearly basis. In a context with fiscal crisis and limited public investments, the Federal Government recognises that the only way to surpass the current situation is the establishment of alliances with the private sector with the support of states and municipalities. With this information, the document concludes that the sanitation sector requires urgent attention and a change in the public intervention.
The new law was not analysed under the umbrella of a Regulatory Impact Assessment (RIA), as it was a project originated within the national Congress. According to the Government of Brazil, the quality of the regulation was assured by the extensive analysis of the project inside Congress and all public hearings conducted. The Congress indicates that any comment from different stakeholders were attender and considered.
On the other hand, part of federal subordinate regulation of the new law has been already published outside the scope of a Regulatory Impact Assessment. In particular Decrees No. 10.430/2020, No. 10.588/2020, and No. 10.710/2021 were published without a formal quality assessment. In Brazil, efforts to implement a RIA process are at early stages, but it is crucial to draft and issue subordinate regulatory instruments for the Sanitation Law after a formal scrutiny to assess their potential net benefits and increase the probability to achieve expected results. The Government of Brazil indicates that the main instrument to rule the Sanitation Law is being planned and such instrument will be assessed through a RIA. This process should be implemented for all subordinate regulations.
Another challenge is the implementation of regulatory quality instruments to oversee draft regulations at the subnational level. It is a fact that some agencies at this level of government implemented some versions of RIA but efforts and scattered. The revision of draft regulation following RIA practices should be a standard for the country.
Stakeholder engagement and Regulatory Impact Assessment (RIA)
ANA indicates that a number of public audiences within the legislative power preceded the reform. This is part of the standard legislative process followed by both chambers and it is recognised that all stakeholders from different segments of the society engaged in a democratic, open and inclusive process.
The Government of Brazil reported many meetings and other practices on stakeholder engagement with several actors during the process of issuing subordinate regulation in the sanitation sector. However, there is no evidence of formal and systematic practices of stakeholder engagement at early stages of the problem identification and the making of policy alternatives, as well as to public consultation process within a RIA.
During the process of reform and issuance of the new regulatory framework in the sanitation sector, the Government of Brazil followed practices that were consistent with ex ante and ex post assessment of regulation, and with stakeholder engagement.
The Government of Brazil led a comprehensive process of consultation, whereby opinions and evidence were collected to enrich the reform process of the law. This process could have been strengthened with practices on early consultation.
In contrast, the review team could not identify more profound analyses on ex ante and ex post assessments, as part of the process of reform of the law in the sanitation sector. The Government of Brazil did perform economic and legal analyses that led to conclude on the need of reform and support the merits of the new law. However, they were not carried out under the lens of regulatory quality tools, which could have allowed establishing a clear link between the public policy objectives through regulatory provisions and past or expected performance and outcomes. Moreover, secondary regulation, such as the decrees that regulate the new rule, did not follow RIA practices.
Finally, given the implications and involvement of subnational governments in the sanitation sector, it is advisable that they too follow better regulation practices when reviewing existing regulation, or issuing new legal instruments.
The section on regulatory policy and governance of this review contain a series of recommendations to the Government of Brazil to strengthen the policy, institutions and tools for better regulation. The implementation of these recommendations can help Brazil to exploit the benefits that regulatory quality practices and tools can bring to reform processes.
References
[3] Programa de Parcerias de Investimentos (2020), O PPI e o Novo Marco Regulatório do Saneamento, https://portal.ppi.gov.br/o-ppi-e-o-novo-marco-regulatorio-do-saneamento (accessed on 24 May 2022).
[4] Sampaio, R. and P. Sampaio (2020), “The challenges of regulating water and sanitation tariffs under a three-level shared-authority federalism model: The case of Brazil”, Utilities Policy, Vol. 64/101049, https://www.sciencedirect.com/science/article/pii/S0957178720300448#! (accessed on 18 November 2021).
[2] The World Bank (2020), The World Bank Data, https://data.worldbank.org/indicator/SH.STA.BASS.ZS?end=2020&locations=BR&start=2000&view=chart (accessed on 17 November 2021).
[1] UNICEF, SIWI and The World Bank (2020), The key role of Water, Sanitation and Hygiene Promotion in the response to Covid-19 in Brazil, https://www.unicef.org/brazil/media/9746/file/policy-brief-wash-in-response-to-covid-19.pdf (accessed on 24 May 2022).