By Rodrigo de Pinho Bertoccelli

With the new Sanitation Legal Framework, the sector has opened up to private participation, marking an important shift in public policy.

Integrity and Development is a column by the Center for Studies on Integrity and Development (CEID), of Instituto Não Aceito Corrupção (INAC). This article reflects solely and exclusively the opinion of the author and does not represent the views of CEID and INAC. The articles are published weekly.

The concept of smart cities and urban transformation have redefined the view of sanitation in Brazil. The old idea that “buried works don’t win votes”, reflecting political hesitation to invest in sanitation, no longer holds.

Today, basic sanitation is seen as an essential right and a key component of environmental sustainability. In addition, previously neglected areas, such as urban drainage and stormwater management, are receiving due attention in light of the effects of climate change.

Challenges such as heat waves, intense storms and flooding have become even more common. The recent climate disasters in Rio Grande do Sul are a clear example of this reality.

However, we still need to understand why drainage remains the weakest link in sanitation concessions and face the last challenge: making the service economically sustainable.

The starting point of the discussion is a great truism

The new Sanitation Legal Framework, enacted in 2020, did what the previous 2007 legislation had not. It included three fronts in the concept of sanitation: the infrastructure, the facilities and the activities of “urban drainage and stormwater management”.

Rightly, the law also addressed the necessary economic and financial sustainability of these services. In other words, since 2020, concessionaires have been allowed to seek remuneration by charging for urban drainage through fees or tariffs.

This finding is not trivial. Historically, raising funds to pay for drainage in Brazil was either non-existent or was (and remains) associated with property tax (IPTU) — a tax whose revenue, given municipal needs, does not always return to its source. A specific fee or tariff for drainage gets around this problem.

In general, measuring rainwater can be technically more objective than measuring, for example, solid waste.

This difference makes charging more transparent, both for the tariff (a public price) and for the fee (which meets the requirements of availability, specificity and divisibility of the National Tax Code).

The actual economic and financial viability of drainage, however, depends on two crucial aspects.

The first concerns the technical particularities of macro-drainage (consisting largely of the natural drainage of rivers and streams, plus networks of channels, dikes and retention basins) and micro-drainage (consisting on a smaller scale of gutters, storm drains and culverts, connected to macro-drainage).

In macro-drainage, individualized charging is hindered by the scale of the infrastructure. In micro-drainage, it can be easier.

And it can also be calculated based on the impermeable area of a lot and on the drainage solutions its owner adopts to reduce water runoff into the local external micro-drainage system.

Models outside Brazil

The American and Canadian models, for example, started from this last premise. In the US, private companies — utilities — provide the service and structure charges through a fixed fee and a fee linked to each lot’s runoff contribution to the micro-drainage system. There are almost 2,000 such utilities across the country.

Canada adopted a similar system from the 1990s onwards, interested in the predictability and stability of the revenue stream of this charging model.

In Brazil, the 2007 legislation already linked charging for drainage services to the impermeability of the lot and to the existence of rainwater detention devices.

However, only 6% of Brazilian municipalities charge for these services, many of them through property tax. Despite this, the country faces a critical deficit in urban drainage, investing about BRL 4.4 billion a year, while the estimated need to achieve universal service in 20 years is more than BRL 7.1 billion a year, according to PLANSAB.

With the new Legal Framework, the opportunity is twofold

Encouraging changes in the behavior of citizen-users and financing the concession of drainage infrastructure, in any of its forms.

The only thing the new legislation does not indicate — nor could it — is the best path for structuring contracts between the government and the private partner. Herein lies the second crucial aspect of the economic and financial viability of drainage services.

This is the potential for interdependence and interconnection among the many basic sanitation services as they move toward universal coverage. Why do municipalities — or even project structurers such as BNDES and CEF — still not bet on urban drainage concession and PPP projects designed transversally and interconnected with water supply, sewage or solid waste concessions?

Interdependence is possible and desirable in the face of concrete challenges. Guanabara Bay is an example: its clean-up now falls to sanitation concessionaire Águas do Rio, winner of the Cedae auctions in 2021.

In the Rio estuary, the phenomenon of the “black tongue” occurs: contamination mixing the bay’s natural waters, water from the urban drainage system and waste from the sewage network.

The result is visible at low tide, when the estuary’s waters, already stained by pollution, flow toward the sea.

The Guanabara Bay case shows the importance of sanitation infrastructure planning aligned with environmental planning. This combination was ignored in the past and, despite the progress and opportunities seen in Rio de Janeiro’s sanitation concessions, will still bring concessionaires and the government to the table to effectively coordinate urban drainage services, sewage services and clean-up actions.

It is worth asking: shouldn’t concessions with such interconnected services ideally be assigned to a single operator, with economic and financial viability guaranteed, for example, through cross-subsidies?

Couldn’t part of the concession fees from ordinary concessions feed a special fund dedicated to PPP projects aimed at universal drainage services? These are possible paths.

Combined with unified service provision and in line with the new Legal Framework, charging through specific drainage fees or tariffs can be an effective instrument to ensure that drainage network expenses are financeable.

Charging, for example, through an addition to the water bill can promote competition and increase private sector participation in the sector, generating efficiency gains in service provision and ensuring a continuous flow of resources for investment in universal service.

Furthermore, the cross-cutting nature of urban drainage also points to an interdependence of services that goes beyond sanitation itself.

Concession and PPP arrangements can and should consider the intrinsic, though not always obvious, relationship between drainage and land regularization, preservation of green assets, generation of carbon credits or even urban mobility.

This is the concept of the “sponge city”, which also has good Brazilian examples. One of them is the new landscaping project for CPTM train stations with “rain gardens”.

Combined with building infrastructure, the gardens are inexpensive to implement and aim to improve environmental comfort, contribute to urban drainage, reduce the impact of heavy rain and filter water before it reaches the surrounding groundwater.

The project was recently awarded by the International Association of Public Transport (UITP Latin America).

Back to the new Sanitation Legal Framework

Basic sanitation is an essential right and a key component of environmental sustainability | Agência Brasil

It is no news that it opened a window of opportunity to solve Brazil’s sanitation problem on a regional basis through cross-subsidies between larger and smaller municipalities. What is imperative is to recognize that the solution must include urban drainage and stormwater management — potentially ignoring them means missing the chance to make up for part of Brazil’s civilizational backlog.

Strengthening regulation, by creating reference standards and guidelines, is also crucial for the development of the sector. Recently, the National Water and Sanitation Agency (ANA) began drafting the reference standard for urban drainage and stormwater management services (DMAPU), with a first version expected by the end of August this year, after a public consultation period that ended in early May.

These efforts are essential to tackling the challenges of urban drainage and promoting more resilient and sustainable cities.

In short, the viability of drainage and stormwater management services depends on structuring concessions and PPPs with dedicated attention to integrating urban, environmental and sanitation infrastructure planning.

Public managers who look up, especially in the rainy season, have long known that buried works do win votes. But “drainage doesn’t make money”, common sense will still say. For how long?

Originally published by SbtNews (in Portuguese).