TCE cancels the injunction that prevented an agreement between Cedae and Águas do Rio and which could cost the state R$ 900 million

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This Wednesday, alternate council members Marcelo Verdini and Andrea Siqueira and President Marcio Pacheco followed the vote of Thiago Pampulha, who defended the repeal of the injunction. In Pampulha’s estimation, the negotiations were conducted under the supervision of Agenersa, the sector’s regulatory agency, and so far there is no need for more stringent intervention by TCE. He also warned that potential economic and financial disruption could burden consumers:

“There is no formal regulatory violation that would justify this court’s more intense and broader oversight,” he wrote. “It does not seem appropriate to shift the burden of upholding the contractual defect to the most vulnerable part of the concessionary relationship, i.e. the user, i.e. the fundamental public interest.”

The Court of Auditors of the State of Rio de Janeiro (TCE-RJ) ordered the suspension of the agreement providing for the payment of compensation of at least R$900 million to Águas do Rio for errors in the tender notice – for which no authority has so far taken responsibility. It was agreed with the state government, on the third of this month, that Cedae Company would pay the amount, through discounts on the value of the water sold to the concessionaire. Now, this law could end up on consumers’ bills.

Last month, Graciosa accepted a request from state representatives Luiz Paulo (PSD) and Jari Oliveira (PSB) and temporarily suspended the agreement. The consultant stressed that although Águas do Rio claims to have found wastewater treatment coverage to be lower than that anticipated in the tender notice, any questions about the contractual terms should have been asked during the competition process.

Graciosa also requested responses from Governor Claudio Castro, the President of Cedae, Aguinaldo Balon, the Rio State Energy and Basic Sanitation Regulatory Agency (Agenersa) and the directors of Águas do Rio to provide detailed clarifications on the agreement. A letter will be sent to the National Bank for Economic and Social Development (BNDES), responsible for preparing the tender notice. The court also asked the Public Ministry of Rio State (MPRJ) to investigate possible coercion by Cedae’s directors and conflicts of interest, given that part of the Águas do Rio team will be made up of former directors of the state-owned company.

Cedae informed that it “awaits the deliberations and approval of the agreement to adopt the specific procedures.” Águas do Rio also says it is waiting for Agenersa to agree to the terms for publishing the new tariffs.

The origin of the dispute goes back to five years ago, when a Cedae lien notice was issued. Aguas do Río says that of the 27 cities in which it operates, 21 showed a discrepancy between the wastewater coverage rates stipulated in the notice and those determined by the company after the auction actually took place in May 2021. The signed contract stipulates that the granting authority must bear responsibility if this difference is greater than 18.5%, which the concessionaire claims to have noticed. To win the auction for two of the four Cedae blocks, the company made a grant of R$15.4 billion to the state and city halls.

Aguas do Río says, for example, that in Magi, the city was expected to have 40% sewer network coverage, but technicians found that the municipality did not even have sewerage collection, a situation similar to what happened in Nilopolis. Differences were also observed in Belford Roxo (from 39% to 8%) and in Duque de Caxias (from 43% to 10%).

The concession notice – which included these coverage ratios – was prepared by BNDES, which claims to have been based on data from the National Sanitation Information System (Snis), from the Ministry of Cities, “analyzed alongside data provided by Cedae itself”. The Ministry of Cities, in turn, explains that the data contained in Snis “is the sole responsibility of the owner and/or provider of sanitation services.” However, to make this information more reliable, starting this year “regulatory agencies will begin verifying, in real time, the data provided by their regulated entities,” the ministry informed.

In a document dated September 29, Sedai attributed these discrepancies to the “self-declaration nature” of the senis, where “inconsistencies or gaps” may have occurred in the information filled out by the state-owned company and city councils.

Aguas do Río claims that the technical visits it carried out before the auction did not allow “to evaluate the buried networks, which would require opening hundreds of thousands of manholes in detailed works, street by street, city by city, in an area covering ten million people.” The agent has now discovered alleged discrepancies in the diagnosis made after taking over the service. The concession contract stipulates a period of 24 months to conduct a detailed survey of water and sanitation coverage.

The cities cited by Águas do Rio as an example are also fallible. Belford Roxo City Council said information regarding the sewerage network had been provided to Snis “by the previous administration”. On the other hand, Caxias says, “The municipality did not and does not have control over the water and sewage network,” attributing responsibility to Sedai. Nilopolis believes that there is a sewage network in the municipality, but “collection and treatment are not carried out on site.” Magé did not respond to GLOBO.

The signed agreement stipulates not a value of R$ 900 million, but a 24.3% discount on the value of the water sold by Cedae to the concessionaire until 2056. The state government asserts that this compensation will prevent increased bills imposed on consumers – which is what was expected to happen in December.

The entire country uses this data

Lawyer Ana Teresa Parente, professor and consultant in sanitation law, explains that Snis collects the majority of municipalities in Brazil, and since it is reference data, even if self-declared, it is used in economic and financial modeling throughout the country, as happened in Rio. She explains that historically, those with responsibility for sanitation are municipalities that provide data to Cedae.

— Data may vary and may not correspond 100% to what exists in practice regarding coverage. Therefore, there is a clause in the contract that talks about the difference margin: until this margin, there will be no rebalancing. But the difference in the case of Aguas do Río was very significant, as Ana Teresa explains. – Everyone has a share of responsibility: Cedae, as the historical actor, is the one who announced the information to Snis in recent years, and the municipalities, as those responsible for providing the service and which for many years were the ones who made investments in sanitation, which they did not declare correctly.