Policies and incentives for developing universal access to water and sanitation for vulnerable families

Public water and sanitation services (WSS) are economically and financially sustainable if they recover costs through tariffs and other sources, such as taxes or grants, when necessary (OECD, 2009) while safeguarding essential, public health functions and expanding access to the population, with special attention given to low-income and vulnerable households (Sinharoy et al., 2019).

The provision of WSS requires sufficient revenues to recover operational costs, make the needed investments, and allow for a fair and reasonable rate of return to maintain and expand WSS (Massarutto, 2020). Financial sustainability also requires good governance since the funding of WSS should be discussed and accepted by society. In this scope, the tariff system design and subsidization model are important for achieving WSS universalization and sending the right signals concerning water resource conservation (Pinto & Marques, 2015).

According to Brazilian national data, in 2019, approximately 82% of the population had access to WSS, which reveals that 40 million people are without access to the service. Regarding sanitation, approximately 100 million Brazilians do not have access to sewage services and depend on inadequate or rudimentary individual solutions (MDR, 2019). The coverage gap worsens in informal and rural areas where WSS are not available. Taking into account the latest estimate by the Brazilian Institute of Geography and Statistics (IBGE), the number of families living in informal areas is growing. In 2019, there were more than 5 million households occupying more than 13,000 informal settlements, and this situation tends to worsen with economic stagnation due to the COVID-19 pandemic (IBGE, 2020).

Encouraging the adoption of adequate mechanisms for planning, regulation, and inspection of WSS provision are national policy in Brazil, which prioritizes, supports, and encourages plans, programs, and projects aimed at implementing and expanding WSS services through integrated and coordinated actions (Victral & Heller, 2021). The latest legal framework reform of the sector and the current Brazilian government have prioritized and facilitated private sector participation as a way to invest in and universalize WSS in Brazil (Narzetti & Marques, 2021a).

However, positive incentives must be rooted in aligned political, institutional, and regulatory (PIR) frameworks for reform measures to succeed and persist. Thus, these frameworks seek to identify the best incentives to promote sustainable interventions for universal access to WSS, especially in vulnerable areas. For this purpose, the direction and commitment of policies must be supported by institutional arrangements that lead to the implementation of universal access to WSS in vulnerable populations (Mumssen et al., 2018).

This research aims to identify the incentives embedded in public policies to include vulnerable households in the Brazilian agenda to expand access and achieve WSS universalization in Brazil. In this way, it seeks to understand the necessary coordination between actors and motivating influences that can direct stimulus from the public sector to achieve sustainable development goals and mobilize action for universal access. This article highlights interesting experiences in Brazil of reaching vulnerable areas and discusses the role of private sector participation in achieving WSS universalization and whether the corresponding incentives are calibrated to serving poor and vulnerable areas.

The contributions to the literature include identifying the challenges in promoting universal access to WSS in vulnerable areas since the design phase. Furthermore, the engagement of families in policy planning provides better results, creates positive externalities for the city and its residents, and enables the transformation of the informal relationship of vulnerable areas into a formal relationship capable of implementing effective interventions (Narzetti & Marques, 2021a). In addition, the process of identifying and recognizing informal areas from the design and the pre-contractual phases improves the legal framework for expanding access to WSS. Finally, we claim that the private sector may play an important role in serving informal and vulnerable areas; however, its engagements and incentives should be well designed.

The paper is organized as follows. Following this introduction, the second chapter analyzes the incentives to ensure the development of and access to WSS in vulnerable areas. The third section debates courses of action for achieving universal access to WSS in informal and rural areas carried out in Brazil. The fourth section examines the robustness of public policies for private sector participation and discusses the expected advantages of private providers. Finally, the fifth section draws the main conclusions.

Incentives are motivating influences or stimuli that incite people, and by extension, institutions, companies, and other actors, to pursue certain goals or behave in a certain way. Incentives for universal access to WSS are a result of the political, institutional and regulatory frameworks alignment (PIR) (Mumssen et al., 2018), and they are fundamental to guaranteeing that actors adopt postures that allow the implementation of coverage goals within the dynamics of the sector. Incentives that allow actors to commit to agreements are crucial to formulating and implementing effective results. In addition, stronger incentives increase stakeholder accountability, by strengthening voluntary compliance through the successful execution of commitments, which, in turn, help build societal trust and improve the general welfare (Marques, 2005).

The legal and policy framework of an industry refers to the set of policies, laws, regulations, orders, jurisprudence (where applicable), legal conventions, and contracts that govern agreements for the management and delivery of WSS. Legal reforms define the de jure policy and support the execution of de facto services (Lindberg et al., 2017).

Governance is also determinant. In the water sector, the concept of governance is understood not only as of the government's political and administrative institutions and their interrelationships but also as the relationship between the government and civil society (McCarney, 1996). Thus, water governance refers to the set of political, organizational, and administrative processes through which communities articulate their interests and their contributions are taken into consideration for universalization, efficient management of water resources, and WSS provision (Bakker, 2003). Governance has improved over the years to encourage greater citizen participation and strengthen the role of each stakeholder to expand service coverage, including by way of direct incentives to provide universal access for vulnerable families, especially those residing in informal or rural areas.

A necessary step to building WSS partnerships between community organizations, local governments, and public or private operators is to raise awareness among reluctant actors, who often see vulnerable communities as inadequate, fraught with legal and socioeconomic problems, to understand vulnerable people as human beings who must have their basic needs met through solutions that are tailored to specific needs and conditions. This involves negotiating with actors, building trust between parties, and increasing participation, especially among people living in slums and rural areas, to make direct commitments with strong cooperation and sector policy alignment between municipalities and state governments to develop WSS in informal or non-infrastructure settlements (Ahmed & Ali, 2006; Akhmouch & Correia, 2016; Akhmouch et al., 2017).

There are many areas in which the needs of vulnerable families could be better ensured by public-private partnerships (PPPs) or public-public partnerships (PuPs). Vulnerable people have an interest in WSS expansion plans and the mechanisms by which these plans will be carried out. In Brazil, most of the deficiencies are concentrated in the poorest areas.

The WSS production chain is directly linked to the use of modern, efficient, and tailored technical solutions and technologies, which should be encouraged to increase the required levels of quality, continuity, safety, and access to the provision of services (Bouabid & Louis, 2015). Public policies should motivate WSS actors to expand and improve service through formal policy statements, such as sector development strategies, that are backed with sufficient funding and clear incentives. Institutions should encourage sustainable management of service delivery as they shape and apply accountability mechanisms that create incentives for actors across the service delivery chain to accept and respond to their responsibilities and desired sustainability outcomes. The regulatory framework should directly impact the sector's efficiency by creating incentives, such as performance bonuses (and penalties), setting targets regarding WSS provision in vulnerable areas, and encouraging better performance in institutions (Sinharoy et al., 2019).

The provision of WSS is understood as a public good and has long been managed by public entities, sometimes with reduced accountability and little focus on results or performance. Economic growth and development have increased the need to expand WSS productive capacity and coverage in cities. The sector has at times been more commercial and customer-focused but not necessarily due to greater private sector participation (Narzetti & Marques, 2020). While there is a growing trend of private sector participation in several countries, WSS are an essential public service that every citizen has the right to use and are ultimately the responsibility of the public sector to provide (Heller et al., 2020). This has been challenging for an industry that has high demands regarding quality standards and performance and requires huge and constant investments. Vulnerable areas are more constrained, often due to a lack of prioritization and a general deficit of public services (Nyarko et al., 2016).

The essential nature of WSS requires clear incentives to universalize access and ensure minimum levels of service. Industry failures demonstrate the need to focus on effectiveness and efficiency in delivering WSS. Since 2007, through government regulations and guidelines, the national basic sanitation policy has gradually incorporated incentives into institutions to create an enabling environment for organizations to operate and invest in infrastructure projects to meet the Sustainable Development Goals (SDGs), specifically those defined in SDG 6 (Di Vaio et al., 2021).

The literature on pro-poor policies has indicated that institutions should have clear incentives to maximize results and that regulation should promote mechanisms that encourage universalization and inclusion of vulnerable populations and consider basic premises such as: (i) price and service differentiation (Bake & Trémolet, 2000; Stallard & Ehrhardt 2004), (ii) tariffs and subsidies (Trémolet & Browning, 2002; Franceys & Gerlach, 2008), (iii) incorporation of alternative service providers and new technologies (Trémolet & Browning, 2002), (iv) customer and civil society participation and engagement (Evans & Brocklehurst, 2002; Stallard & Ehrhardt 2004), and (v) levels of service and universal service access obligations (Franceys & Gerlach, 2008).

In Brazil, despite the advances promoted by Law 11.145 in 2007, the population still faces serious problems in accessing WSS (Narzetti & Marques, 2021b). In addition to the poor quality of service and high operating loss rates, significant investments, estimated at more than R$700 billion ($132 billion, exchange rate R$5.31) are needed to reach the universalization targets by 2033 (KPMG & ABCON, 2020).

The incentives created by the legal framework in Brazil, established by Law 11.445, led to important advances in human rights to basic sanitation, but they were not enough to promote universalization in more than 5,700 municipalities. After 12 years, updates were necessary, and Law 14.026 in 2020 defined new commitments and coverage targets. According to this law, the expansion rates of WSS must be defined in the contracts, and the coverage targets are 99 and 90% for water supply and sewage collection and treatment, respectively, by 2033 (Narzetti & Marques, 2021a). This WSS universalization will bring enormous direct and indirect benefits to the country valued at approximately R$1.5 trillion ($282 billion) over the next 20 years (Freitas & Magnabosco, 2018). To promote investments in the WSS sector, achieve universalization targets, and create the corresponding positive externalities, massive investments are required.

Although private sector organizations might become an alternative for WSS provision, there is also another possible arrangements, including public-public partnerships (Pinto et al., 2015). For example, the smaller Brazilian local governments can increase efficiency when cooperating horizontally – inter-municipal cooperation (Silvestre et al., 2019). This is an alternative that can be adopted, because around 70% of Brazilian local governments provide WSS to a population below 20,000 inhabitants. In that sense, it might not be attractive for private sector organizations to get involved in such investment when scale gains might be challenging (Hefetz & Warner, 2012). Besides, inter-municipal cooperation in Brazil can result in improving local government negotiation and monitoring skills when contracting private sector organizations (Silvestre et al., 2020). Incentives are provided to gain scale efficiency through regional arrangements and encourage private sector participation in the operation of WSS. When local governments cooperate, the private sector is prone to get involved due to scale economies improvements.

The current legal framework already includes incentives, that are an integral part of the contracts, to make the coverage goals feasible, whether through privatization, concessions, PPPs, or reassessing contracts between public institutions (PuP) (Marques, 2016). Reassessing contracts between PuP will bring a significant number of projects and public funds into municipalities that currently delegate their WSS to state-owned companies through PuP. Indeed, the new law reinforces contractualization and regulation by distributing contracts through competitive processes with direct incentives for universalization (Marques, 2021).

For low-income countries, aligning incentives through PIR frameworks promotes pro-poor development, as most vulnerable citizens are not connected to WSS and will only benefit from infrastructure if there are incentives that induce interested parties to maximize their production function and to allocate the added value needed to universalize access without harming economic and financial sustainability (Mumssen et al., 2018). Coordinated actions enable the provision of services to communities that have isolated and local systems, where it is technically unfeasible to connect to conventional networks, as is the case in peri-urban areas surrounding large cities, villages, or rural areas.

Future concession contracts need to be prepared to fully comply with SDG 6, in coordination with target 6.2, which provides direct attention to human development and benefits the poorest communities. The call for funds needs to objectively present the strategies related to investments associated with universalization in vulnerable areas, and, for this, the information needs to be clear and well presented.

Brazil has a healthy coexistence between public and private companies and this arrangement may facilitate a smooth transition in the WSS provision model. Even during the COVID-19 pandemic, demand in the WSS sector has remained quite stable, as consumption and price elasticity are low, a feature that guarantees stability for long-term projects and strengthens social inclusion policies (Nauges & Whittington, 2009; Barde & Lehmann, 2014). However, the success of universal access to WSS requires structuring robust projects and stating the challenges and corresponding solutions which includes describing the characteristics of the coverage area in detail, highlighting information on formal, informal, and rural areas, considering the inclusion of pro-poor service delivery in project design, contracting, and systematic monitoring of implementation (Boakye-Ansah et al., 2019; Boakye-Ansah et al., 2021).

When considering the main challenges to expanding access to WSS at the design and pre-contractual stages, contracts can be better structured to include service delivery in vulnerable and informal areas. For this purpose, public bidding documents should include information such as socioeconomic data, area characteristics, summary statistics, targets, and levels of service, to identify, map, and qualify vulnerable areas without access, especially informal neighborhoods and rural areas. It is necessary to identify the affordability, subsidies, and sources of support available to expand regular and quality access, either through regulating alternative suppliers or partnerships with communities based on technical qualifications or with direct contracting of beneficiaries (Christopher & Beal, 2021).

After considering the local characteristics in detail during project preparation, the interrelationship between the objectives, deadline, rationality, risks, sustainability, and attractiveness must be transparent so that competitors can analyze and propose adequate solutions for each of the identified needs (Ostrom et al., 2002). Therefore, preparing complex and detailed projects requires a series of steps that need to be periodically reviewed to mitigate risks and increase transparency in the public bidding process. This process should prioritize corrective solutions for universal coverage and give equal consideration to all families, regardless of their location, be it formal, informal, or rural areas.

To fulfill the project's objectives, sound governance, contract management development, and regulation are essential to remedy any shortcomings that may be present in contractual instruments (World Bank, 2018). A cyclical review of the established conditions enables a reassessment of the defined parameters and a review of the incentives to ensure universal access, maintain the sustainability of the contract and ensure proper project execution. The development process of WSS projects described above is shown in Figure 1 (which is adapted from several sources). The figure describes the stages of modeling and includes the assumptions in the evaluation cycle that encourage equity of access and sustainability of service provision.

Whether the WSS concessionaire is public, private, or hybrid, the government plays the primary role in setting the rules by which a WSS concessionaire operates. In the case of long-term lease and concession contracts, this includes contract negotiation and the creation of the regulatory framework. The framework presented above highlights the incentives for prioritizing vulnerable families in urban or rural areas in negotiations concerning water and sanitation contracts.

To shed light on the legislation and national public policies in force in Brazil, we highlight some strategies aimed at expanding access to WSS in vulnerable areas, especially those about performance contracts. In the state of São Paulo, the Sustainable and Inclusive Water and Sanitation Program, developed by the state water and sanitation company SABESP, is heavily involved in water security and incorporates social inclusion, environmental preservation, and technical and contractual innovations. In 2016, in the metropolitan region of São Paulo, 300,000 low-income households located in vulnerable areas lacked regular access to WSS. That same year, the ‘Água Legal’ (‘Cool Water’) initiative was started to regularize service to these areas through a collaborative partnership with the private sector. The contracts were developed to hold a performance and remuneration incentive clause, with the possibility of bonuses, linked to the targets for the effective delivered water volume (SABESP, 2018).

The program aligned the various incentives highlighted by industry best practices (Franceys & Gerlach, 2008; Trémolet & Halpern, 2006; Mumssen et al., 2018). The contracts involved strong coordination with the beneficiary population to solve the problem of regularizing access through the in-depth diagnosis of the territory and environmental awareness, and participation and consent from local communities with regards to the opportunity for entrepreneurship and social work, and to the adherence to the program, among other issues. The gains are significant and include improved public health, regular water supply availability, social tariffs, and tangible and intangible benefits resulting from formalizing access. In 2019, a new project, with an estimated cost of US$350 million, was initiated by the state provider after the completion of the first project to continue expanding safe access to WSS for approximately 190,000 families in areas of high social vulnerability by 2024. The project involving the building of 152,000 water connections and 38,000 sanitation connections will transform the relationship between WSS providers and communities, and improve human development and public health.

Figure 2 displays the regularization and expansion process of WSS in informal communities developed by the SABESP. Performance-based contracts with incentives proved to be very effective and were adopted not only by the SABESP but also by other state companies in Brazil.

The Integrated System of Rural Sanitation (SISAR) project, which began in the 1990s to remedy the lack of access to water in rural communities in the state of Ceará, stands out among rural projects in Brazil. Currently, other states are using the same model, such as Bahia and Piaui. The project involves the local community in the management of the WSS and incorporates incentives to achieve financial self-sufficiency at some point in the project's lifetime. The success of the SISAR project demonstrated that better management of investments in rural basic sanitation results in better outcomes. The project avoids premature deterioration of infrastructure by continuously improving operation and maintenance and by training the beneficiary communities on health, the rational use of water resources, and other social empowerment activities (Castro, 2015).

In Ceará, more than 1,000 systems have already been implemented, with approximately 700,000 people benefitting from them. Thus, the SISAR model can be developed in any state in Brazil, only requiring an initial subsidy for program implementation, construction of infrastructure and facilities, and training the community on the operation of the system. Currently, SISAR has several self-functioning units in rural communities supported by state investment in the areas with the highest level of need. In the case of Ceará, some investments are carried out by the state company CAGECE, which also provides technical assistance and support to the rural systems of SISAR.

During the COVID-19 pandemic, the state government subsidized the payment of water bills for vulnerable families served by SISAR to provide more dignified conditions for those living in rural communities and support these populations during the health crisis. More than six million reais (US$1.1 million) of the statewide WSS fund was subsidized to pay the water bills of approximately 119,000 low-income families.

Over the past two decades, there has been a shift in public sector thinking from applying standardized solutions to tailored, negotiated, and consultative reforms that create incentives for service delivery with a focus on inclusion, participation, and networking between the public sector (governments and public operators), the private sector (companies) and civil society (Hyndman & Liguori, 2016).

These characteristics imply that governments must manage and promote effective coordination mechanisms vertically between intergovernmental levels and horizontally across organizations. This challenge is commonly referred to as the coordination problem (McCubbins & Weller, 2020), and it is observed as a challenge to expand WSS to vulnerable areas.

In addition, there are several strategies that can be combined and consolidated to improve provision in low-income areas (Berg & Mugisha, 2010; Boakye-Ansah et al., 2021). These courses of action are usually tailored to the specific location and characteristics of the community and cannot be easily generalized. A central and difficult question is understanding how the interests of vulnerable families influence the trajectory and outcomes of projects. Most of the parties involved in negotiating, contracting, or implementing WSS projects do not know or disregard the water and sanitation conditions in low-income neighborhoods, slums, or rural areas.

These inadequacies should not serve as obstacles but rather as opportunities for progress. Concerning the importance of sound governance and the provision of incentives, the lessons learned are clear. The former involves understanding the needs and priorities of citizens, which emphasizes the role of their engagement, negotiation, and taking into account their particular interests in negotiations (Eskesen, 2021). Incentives, which are fundamental to achieving results, can be provided by contracts with public or private operators and/or by regulations.

Recent public policies, the need for huge investments, and fiscal stress in Brazil have called for private participation in the water sector and for more incentives, through which efficient prices and investment capacity are obtained by competition, to meet coverage targets throughout the country. The benefits associated with the private provision in WSS are highlighted mainly by public choice theory, property rights theory, and transaction costs theory (Marques & Simões, 2020). Sometimes, transaction costs are pointed out as a weakness of the private sector participation due to the contractual complexity including the public tender (Brown & Potoski, 2003; Bel & Warner, 2008) and later the renegotiations, however particularly in countries with high bureaucracy, separate public tenders are required for design, construction and possibility operation and maintenance and this situation increases substantially the transaction costs.

Among the main options and changes that occurred with the new regulatory framework of the WSS in Brazil, the main issue is related to the creation of an enabling environment for private sector participation, whether through privatization, concessions, or PPPs. Several clauses of the new law highlight this point. Particularly, the law terminates contracts between public institutions (‘program contracts’), which will lead to a significant number of public biddings from municipalities that have delegated their WSS to state-owned companies, an arrangement that affects approximately 80% of Brazilian municipalities and more than 70% of the Brazilian population (Marques, 2021). Assuming the precariousness of most contracts signed between public institutions and that many municipalities do not have a signed and formal contract, the new law reinforces contractualization in concession contracts and regulation. Only municipalities with direct management of WSS will not be required to sign a concession contract. The new law also stipulates that public operators need to demonstrate their financial capacity to make the investments required to achieve WSS universalization and that a public tender will be launched if capacities fall short. Furthermore, the new law provides incentives for the regionalization of local WSS to make them more financially sustainable and attractive to private sector participation. Finally, the new legal framework provides more legal certainty through more complete contracts, clear policies, institutions with well-defined and objective functions, identified risks, and more homogeneous regulation, (such as the reference standards to be developed by the Regulatory Agency National Water and Sanitation (ANA) (Oliveira, 2021).

However, with the support of current legislation, it remains the responsibility of the municipalities to facilitate private sector participation and structure more comprehensive contracts to improve living conditions and eradicate poverty. The universalization of WSS must be conceived in an organized and inclusive manner to overcome serious challenges in this sector.

The review of the legal framework has brought a new landscape, with opportunities and threats, to achieve universal access to WSS for vulnerable families. To identify the main impacts of the policy changes, our analysis develops the SWOT model (Strengths, Weaknesses, Opportunities, and Threats). This model allows us to objectively understand the strengths and weaknesses of the Brazilian water sector following the legal framework update regarding universal access for the poorest people. The results of the SWOT analysis highlighted the strengths of the updated legal framework, which included designating a national regulator to set regulatory benchmarks, requiring WSS providers to demonstrate their financial capacity to honor planned investments, and opening competition to WSS contract operators, and how these strengths contribute to achieving clear objectives and universal access.

However, there are also remarkable weaknesses that need to be addressed. The weaknesses identified include the inability of companies to execute planned investments, lack of access to available financing, and lack of accountability by good governance practices. Another issue is determining the optimal size for the WSS among regional operators, as connections depend on the cooperation of each municipality within the region. In addition, another important challenge in the WSS sector is the affordability of services to vulnerable populations and the lack of an adequate and coherent subsidization model.

The sources of weaknesses and threats include public administration capacities and political coherence, specifically regarding contract preparation, inspection, and monitoring the execution of services beyond politicians' electoral cycles. Another threat worth mentioning is the governance of the roles and responsibilities of parties at different administration levels, particularly those in vulnerable areas, as these are generally not clearly defined. This lack of clarity on the roles and responsibilities of relevant parties creates situations that are difficult to solve throughout the contract and directly impacts compliance with the investment schedule and the population served. Moreover, the litigious and bureaucratic culture of the Brazilian administration can also jeopardize targets and deadlines.

Finally, opportunities have been identified following updates to the legal framework for the WSS sector, which consists of integrating water and sanitation policies with housing and redevelopment policies to regularize household land tenure in informal areas and bring basic infrastructure to everyone. Integrating these policies can be made possible by creating financing lines for the eradication of poverty and joint and coordinated action from the public and private sectors. National regulatory reference standards are an opportunity to monitor and evaluate service delivery performance and equalize capacity, innovate governance, integrity, and transparency. The high inefficiency of the operators, the financial conditions, and the momentum gained in the WSS sector during the COVID-19 are also important opportunities to leverage and universalize WSS to the poorest in both informal urban and rural areas.

Figure 3 shows a SWOT analysis of the new legal framework with the need to universalize WSS access in mind.

Expanding WSS infrastructure in informal and rural areas requires coordinated action and contracting by local governments along with available public policies and organized by contracting the execution of the WSS, both in the regular territory and in special solutions, in vulnerable areas with new technologies and infrastructure adaptations (Boakye-Ansah et al., 2020). The private sector can contribute to expanding service coverage in urban and rural areas but their efforts depend on the initiative and structure of the local government. The main aspects of private sector participation in WSS are presented below.

Inadequate infrastructure for WSS is a constraint on growth, especially in developing countries (Tortajada, 2014). Poor infrastructure is inadequate to meet demand and leads to low quality and unreliable provision, resulting in the rationing of services and an inability to achieve full coverage (UNESCO, 2015). This situation is a major challenge for the public sector, as most governments are unable to maintain the existing infrastructure, much less provide the necessary expansion, either due to lack of cost recovery or by prioritizing investments in other sectors (OECD, 2015).

The provision of WSS requires efficient planning and coordination of infrastructure projects to maximize the use of limited financial resources and generate positive externalities. In addition, the delivery and operation of infrastructure assets and services requires careful contractor supervision to ensure asset quality and delivery times, maximize benefits, and prevent additional costs. Thus, incentives are decisive but they do not lead to the same results for public versus private operators.

In Brazil, WSS ownership belongs to municipalities, which can provide WSS directly or delegate to a local, regional, or private company through a concession or PPP contract. In Brazil, most WSS are delivered by a public provider (regional or local) instead of by the municipality (MDR, 2019). However, this arrangement is subject to less pressure for efficient results and thus faces lower accountability and lower debt capacity. This reduced financing capacity makes the WSS provider more vulnerable to interference, on the part of patronage networks, political interests, and other government entities. Usually, the involvement of political interests results in imprudent investments with less social impact. In line with the new legal framework, the first regional concessions to the private sector were recently tendered in Brazil, and other concession projects in blocks of municipalities are under development (Narzetti & Marques, 2021b).

Given the problems mentioned with the public service provider's ability to deliver essential services, a priori, private sector participation can hold great potential to improve efficiency and close the public sector investment gap by providing private investment to extend coverage, especially to vulnerable areas. Another advantage of private sector participation is the reduction of political interference in investment decisions as contractualization affords greater transparency and accountability (Lima et al., 2021). Nevertheless, the outcomes depend on the quality of the contracts and the embedded incentives. For example, if targets for vulnerable areas are not well-predicted in the contract if the risk matrix is unbalanced, or the procurement process is not well developed, then the private sector is certainly a worse option.

The decision to privatize WSS provision requires governments to change their role from directly providing infrastructure services to managing businesses (contracts), promoting competition, delegating regulation to demand competitive service levels, and monitoring and inspecting. This change would help extend service coverage and improve social equity (Castro, 2010).

Figure 4 schematically shows how the private sector can be involved in improving WSS delivery.

The better results and efficiency of private ownership are mostly justified, as private managers have greater freedom and incentives than public managers to be efficient and innovative through salaries linked to performance, bonuses, participation in results, goals, and other incentives (McLaughlin et al., 2005; Marques & Simões, 2008; OECD, 2017). However, agreements with the private sector also have some disadvantages according to Marques & Berg (2010), such as high costs of drafting contracts, possible opportunism by the partners (public and private), renegotiation, conflicts (including early termination of contracts), difficult risk allocation, and overestimated profit by shareholders.

The private sector brings several benefits to achieving universal access to WSS, including increased capacity and effectiveness in investments, financing capacity, operational efficiency, innovation, and know-how. However, private sector participation remains controversial, especially when private companies earn high profits and shareholders attempt to increase profits, potentially leading to high tariffs and jeopardizing the quality of service in an asymmetric environment (Takano, 2021). Additionally (and incorrectly in our view), critics point out that the private sector does not have an interest in providing WSS to poor and vulnerable people since this population is expensive to serve and lacks the resources to pay for services. This is false unless vulnerable people do not have access to WSS with public operators. If this population has access to WSS, the private sector can reduce service costs. Furthermore, the issue of non-payment for services can be addressed by an adequate subsidy regime. Regulation and high standards of governance and transparency through social participation and accountability can change the status quo. Even so, it is necessary to dispel existing prejudice among the sector's stakeholders (Marques & Simões, 2020).

This article discussed the incentives to increase investments in the Brazilian WSS sector and how to create an enabling environment for private sector participation to increase universal, sustainable, and inclusive access.

Some WSS providers already understand the need for universal coverage and continuity of the services they offer and can reconcile demands for results and expansion. The added value of this relationship stems from how investment capital is anticipated. When resources are allocated toward social wellbeing, the entire economic and social structure benefits from the resulting positive externalities that drive development.

The focus of regulation is one of the relationships between customers (citizens), suppliers, and the state. It is necessary to incorporate incentives and identify economic alternatives to reach unserved areas. This guidance will promote the adequate and affordable provision of safe drinking water to underserved areas by adopting mechanisms that can provide an optimal benefit to low-income populations. For this, it is necessary to provide information about vulnerable families so that targeted programs (e.g., a fund to connect low-income consumers to the network), solutions, subsidies, and investments can be established. By putting the interests and influence of vulnerable households at the center, water and sanitation sector stakeholders will align their interests with those of vulnerable groups to develop a positive cycle of development.

The WSS production chain is directly linked to the use of modern and efficient solutions and technologies, which should be encouraged via incentives to increase the required levels of efficiency, quality, continuity, and safety in the provision of services. Tariff and nontariff subsidies can be provided for users with insufficient funds to cover the total cost of services.

The new legal framework provides direct incentives for the privatization of infrastructure services through regionalized structures, robust governance, and best practices in the sector to universalize access to WSS. Contract modeling is the main mechanism to achieve universal access to WSS for vulnerable families, especially in informal or rural areas. Well-structured regulation of contracts plays a fundamental role in monitoring compliance with established goals, ensuring transparency, fulfilling obligations to each of the parties, and aligning their interests to universalize access to WSS.

About the points presented, WSS research in developing countries is a very important issue due to its possible impact on practice. Although the research is focused on the case of Brazil and its latest reforms, the theoretical contributions can be useful and help other countries with a similar situation.

All relevant data are included in the paper or its Supplementary Information.