New Legal Framework for Basic Sanitation was converted into law and brings perspectives of investment of up to BRL700 billion
Federal Law No. 14,026 was published today in the Federal Official Gazette setting forth the new legal framework for basic sanitation. The new law aims to universalize sanitation services by improving the sector’s regulation in order to attract the private sector and foster investments, bringing greater competition to the market.
We highlight below the main points of Law No. 14,026, of 07/15/2020:
- Targets: establishes as a target the universalization of basic sanitation services in order to provide potable water to 99% of the population and sewage collection and treatment services to 90% of the population by no later than the year 2033;
- Investment: facilitates and creates incentives for private investment establishing that Municipalities and the Federal District are prevented from (i) entering into partnership agreements without a prior public bidding process with mixed capital and public companies, and (ii) sub-delegating the services without a prior public bidding procedure, thus ensuring the private sector’s participation in the bidding;
- Existing partnership agreements: partnership agreements in force will remain in effect until its date of expiration and may not be renewed;
- Sub-delegation: sub-delegation will be permitted, subject to (i) the service provider demonstrating its technical qualification; and (ii) that the relevant agreement or the granting authority expressly authorizes such sub-delegation, which shall not exceed 25% of the contract value;
- Replacement of partnership agreements: authorizes the replacement of concession agreements or partnership agreements by new concession agreements in the event of a change in control of a state-owned company providing sanitation services;
- Coalition of municipalities: allows the formation of a coalition of municipalities to provide basic sanitation services in a certain geographic region in order to ensure the provision of the service’s technical and economic-financial viability;
- Standardization of contracts: sets forth that the sanitation service contracts shall be standardized and contemplate f certain essential provisions, such as, but not limited to, quantitative and qualitative targets for the provision of services, possible sources of alternative revenues and risk sharing among the parties, thus bringing greater informational symmetry and reliability to the contracting parties;
- National Water and Basic Sanitation Agency (ANA): determines that ANA shall establish reference standards for the regulation of public basic sanitation services, such as, (i) quality and efficiency requirements, (ii) tariff regulation mechanism, and (iii) standardization of contracts for the provision of basic sanitation public services, among other topics;
- Arbitration: authorizes the use of private methods for the resolution of disputes resulting from or related to the service contract, including arbitration, provided the proceedings are carried out in Brazil and in the Portuguese language; and
- Environmental licensing: authorizes the adoption of simplified procedures for the environmental licensing of sewage, effluent and solid waste treatment units.
The President has vetoed, upon enacting Law No. 14,026, of 07/15/2020, certain provisions of the original bill approved by the National Congress, including the section that allowed the extension of the so-called partnership contracts, which are entered into (without a prior bidding process) by the relevant granting authority and a mixed capital or public companies commonly used in the provision of services by state sanitation companies.
All vetoes made by the President will be analyzed by the National Congress, which may overturn them and incorporate the relevant provisions once again into the legal text, as initially approved.