Critical analysis of the economic and financial indicators defined in Decree No. 10,710 and the situation of service providers (2015–2019)

ABSTRACT

The federal government of Brazil, in the New Legal Framework for Basic Sanitation defined in Law N. 14.026, from July 15, 2020, updated the legal framework for basic sanitation in Brazil, promoting relevant changes with the objective of universalizing water and sewage services by 2033 — or 2039, if the goals are not feasible by the first term. Decree No. 10.710, of May 31, 2021, established the methodology for proving the economic and financial capacity of public sanitation service providers, and defined indicators and parameters for proving this capacity, so that current providers continue with the contracts in force. According to the text of the decree, providers must meet minimum requirements in relation to the level of indebtedness, the cash sufficiency index, the net margin, and the return on equity (ROE) to be able to proceed to the next step of evaluation. The objective of this research was to evaluate the financial situation of water and sewage service providers in relation to the minimum values required for the indicators, in addition to making a critical analysis of their suitability and of their methodological restrictions in view of the objectives defined by Decree No. 10.710, of May 31, 2021. Results showed that just over 55% of current providers would be considered approved in the first stage, with the cash sufficiency index being the main cause of failure. In addition, the results also showed that ROE is poorly suited as an approval criterion, given that some companies had negative equity in the period considered.

Keywords:
new legal framework; basic sanitation; economic and financial indicators; Decree No. 10.710