SABESP Announces Agreement and Contract with the Municipality of Sao Paulo

Jun 23, 2010, 08:32 ET from SABESP

SAO PAULO, June 23 /PRNewswire-FirstCall/ -- Companhia de Saneamento Basico do Estado de Sao Paulo - SABESP ("Company" or "SABESP") (BM&FBOVESPA: SBSP3), pursuant to CVM Instruction 358 of January 3, 2002, hereby informs the public that, on June 22nd, 2010, its Board of Directors authorized the Executive Board to execute a "Public Water Supply and Sewage Services Contract" between the Company, the State of Sao Paulo ("State") and the Municipality of Sao Paulo ("Municipality") to assure the Company the right to provide public water supply and sewage services in the State Capital for a period of 30 (thirty) years.

In compliance with the best corporate governance practices, the Company has shown in its financial statements (Explanatory Notes) the situation of the "Agreements with the Municipality of Sao Paulo."

The key aspects of the Contract, which is expected to be signed in the next few days by the State, the Municipality and the Company, as well as the Agreement to be signed between the State and the Municipality with the intermediation and consent of SABESP and the Sao Paulo State Sanitation and Energy Regulatory Agency ("ARSESP"), are:

  1. The State and the Municipality assign SABESP the right to provide sanitation services to the Capital of the State of Sao Paulo, which involves the obligation to provide the services and the right to be remunerated through the receipt of tariff revenues;
  2. The State and the Municipality determine ARSESP as the entity responsible for the regulatory functions, including tariffs, control and inspection of services;
  3. The valuation  was based on the discounted cash flow method, which took into account the economic and financial sustainability of SABESP's operations in the Metropolitan Region of Sao Paulo;
  4. The cash flow included all operating costs, taxes, investments and the remuneration for the opportunity cost of SABESP's investors and creditors;
  5. The investments foreseen in the Contract correspond to the minimum amount of 13% of gross revenue obtained from the provision of services in the Municipality of Sao Paulo, net of Cofins and Pasep taxes, and are already considered in the Investment Plan announced by the Company;
  6. The transfer of funds to the Municipal Environmental Sanitation and Infrastructure Fund for use in actions relating to sanitation services in the State Capital, constitutes a fee to be recovered in the tariff, as determined in the Contract. This amount corresponds to 7.5% (seven point five percent) of gross revenue from the provision of services in the Municipality of Sao Paulo, net of Cofins and Pasep taxes;
  7. The opportunity cost of SABESP's investors and creditors was established using the weighted average cost of capital (WACC) methodology. This figure was used as the cash flow discount rate; and
  8. The Contract envisages the remuneration of the net assets in operation, calculated preferably through asset valuation or by the monetarily updated book value, to be established by ARSESP. The Contract also foresees the remuneration of the investments to be made by SABESP, such that there will be no residual value at the end of the Contract period.

The establishment of a formal contract with the Municipality of Sao Paulo, which represents approximately 56% of the Company's total revenue, guarantees legal and asset security to SABESP, adequate return to shareholders and quality services supply to its clients.

SABESP will publish the relevant documents in its website ( after the Contract and the Agreement are executed.