Potential regulation changes raising red flags in Brazilian sanitation

Brazil's sanitation industry, which has attracted the lion's share of recent private-sector investments, has fallen under a shadow of uncertainty as some members of president-elect Luiz Inácio Lula da Silva's transition team look to review existing regulations, including the role of regulator ANA.

Christianne Dias Ferreira, former head of ANA and a partner at infrastructure-focused advisory firm Vallya, talks with BNamericas about stakeholder concerns.

BNamericas: What is your view of the fact that the federal government transition team is suggesting changes in the regulation of the sanitation sector?

Ferreira: I confess that I don't see it as positive. The framework for sanitation required intense debate with all the stakeholders until it was approved, and it brought very significant changes to the sector.

What worries me is that there seems to be an attempt to start a debate that there's competition between public and private sector investments and this discussion has already been had.

The focus now has to be on universalizing the service and it doesn't matter who will make these investments for progress in the sector, whether they're public or private sector companies.

BNamericas: What are the points currently being discussed that cause you the most concern?

Ferreira: When there's talk about weakening the national regulatory agency [ANA], this will automatically weaken investments. As ANA was recognized as the sector regulator, we saw that tenders were successful and investments began to be made.

When there are talks to reduce the powers of ANA and pass them on to some government department, you take away the agency's autonomy, you take away its independence. That's a huge risk. The sanitation sector is one of the most backward sectors in the country and one of those that most needs investment and that requires the existence of a strong regulator to attract investors.

BNamericas: What other risks do you see at the moment?

Ferreira: The recently approved regulatory framework [in mid-2020] required that local governments always sign contracts after the bidding process. There's a suggestion to revoke this obligation and that brings legal uncertainty to the sector.

What worries me is that we're already seeing investments taking place thanks to the new regulation. Why do they want to go backward? The past model didn't work. Water and sewerage coverage was low, so why do they want to go back to the old model and review what is working now?

Of course, all regulations can go be adjusted over time, but I'm concerned when talking about broadly repealing a regulation that's producing results.

BNamericas: Some state governments have announced plans to privatize their respective state-owned companies. Could a more profound change in sector regulation affect these privatization processes?

Ferreira: Any sign of regulatory instability drives investors away from the sector.

The rules for the sanitation sector in Brazil are quite complex, involving national and local actors. Investors who started to position themselves in the sector in Brazil took a while to understand all the rules and when it seems that they're understanding them well, there are talks to change them.

This all creates an environment of uncertainty and we'll have to wait to see what the government-elect will actually want to discuss regarding sanitation regulations.

BNamericas: Do you think we might see a change in the role of the state-run development bank BNDES as a structurer of projects in the sector?

Ferreira: It's not clear how BNDES' role will play out, whether or not the bank will continue structuring projects.

The BNDES did a great job in structuring lots of projects, not just in the water and sewerage area, but also in projects related to garbage landfills.

It's important for BNDES to continue structuring the sector's projects.