Companhia de Saneamento Básico do Estado de São Paulo - SABESP Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 10, 2023

There are 1 speakers on the call.

Operator

Good morning, everyone. Welcome to the Earnings Conference Call for SABESP for the Q3. I'm Luis Roberto Chieberio, and I'm the Superintendent of Investor Relations. Today with us, we have Andres Aucedo, CEO of the company, Katya Descheira, CFO and Investor Relations Officer and Marcelo Miyagi, Superintendent of Accounting. Before turning the floor over to Andre to start the conference, I would like to make some announcements.

Operator

This video conference has simultaneous interpretation into English, and it's being recorded. The presentation and recording will be available for download at the IR portal of SABESP, where the press release is available. We remind you that questions will be taken only in writing at the chat box of this platform. This conference will last approximately 1 hour and a half, considering time for Q and A with analysts, investors and journalists. We would like to clarify that statements that may be made during this call regarding the business prospects of the company, projections and operating and financial goals are based on assumptions based on the beliefs of the company's management as well as on information currently available to the company.

Operator

They do not constitute any recommendation for investments. Forward looking statements are not guarantee of performance. They involve risks and assumptions and uncertainties as they refer to future events and therefore, the dependent circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors it may affect future results of the company and lead to results that differ materially from those expressed in such forward looking statements. Now I turn the floor over to Salcedo.

Operator

Thank you, Chiberio. Thank you, everyone, for your presence. Another cycle that we're completing. I think the earnings released yesterday. It materializes all the effort we have been making with lots of communication, transparency, the alignment with an active listening to the priorities of the company, to our goals.

Operator

And basically, the result of this quarter reflects part of this effort that will unfold in the coming months given the company's structure. We have a long way to capture the gains that will result from current initiatives. And in order to give some accountability within what we planned in the beginning of the year and have executed so far, I would like to share with you a bit of our perception in terms of prospects, planning execution and the deliveries that we are making on this quarter, still in the cycle of 2023. The next call will be in 2024. So in the beginning of the year, We have reprioritized the strategic leverages of the company.

Operator

We have shown you in SABESP Day in August. And a good portion of these restructuring of the company is in course and being implemented. This it's part of incentivized dismissal plan that's been negotiated to with employees with a good adherence, more than 50% of our initial target. And this is completed. The implementation happened during 1 whole year.

Operator

That's when the entire restructuring will be completed by January 24, and the shared services center will be fully operational in the middle of 2024 because that's when the layoff program will be completed. So It's a very complete program that's on schedule. In the business optimization line, We have created the new officers of customers in the meetings held in April. The new officer took office in August. And according to the efforts of Sabrina and CACHE, we are rethinking our relationship with customers, identifying opportunities, getting to know our customers better and paying attention to billing, ensuring that once the service is provided, we have a collection rule that is fully implemented to ensure the preservation of our revenue.

Operator

So this starts to show signs of results in this quarter Due to two shocks between this effort of this fare that we have and also the collection that's diligent and close in the billing cycle. Energy is another focus. It's one of the largest expenses we have. We have a project in 3 fronts in for efficient energy to increased automation and efficiency, identify opportunities for energy generation, especially low voltage, solar panels. Also within our operations to identify some opportunities of a better structured energy source.

Operator

In Araw, we had an important waterfall from the reservoir to the treatment unit, and we are doing a partnership of a 4.1 Mega Hydropower Plant there. So we also aim to optimize the purchase of energy. So what's the best energy sourcing that I can have to serve the company? So we migrate and we are now migrating its set of data that will add to the current situation. And Until the end of the year, we'll launch a request for proposal to implement a self production project for energy of solar panels, so that as of 2026, we can have a self production structure for energy that will allow us to reduce carbon footprint and scope 2.

Operator

In sustainability, we have an intense agenda. And among other actions. We've been able to obtain the gold seal of the carbon emissions inventory. That's an important step to define the goals and start pursuing them. Looking at the sewage treatment plants, We know that they are the highest source of greenhouse gas emission in our structure.

Operator

And We want to have that projects that will generate energy within them with biomethane, biogas generation with projects escalating to other units, productions of water for reuse. That's also implemented in a partnership with Apollo and we believe there is room to expand to other units. There is a challenge in terms of regulation there for it to be more favorable. And in terms of energy and biogas, we have a possibility of heat cogeneration and being able to reduce the cost transportation of sludge that goes to sanitary fuels. So This is very important that starts with the identification of carbon emissions, circular economy, energy efficiency and now everything is combined in an integrated way in the new business view.

Operator

From the institutional point of view, There are some important advancements made. We expect to have in the next month the recognition by SABESP of this effort the company is making through the new business officer with them with Arcespi taking our topics in terms of tariff review and what should be recognized in our tariff such as commercial programs, for example. We submitted that to our SABESP. We are talking to them to have a more detailed discount and types of customers that have a differentiated treatment and the rationale of such differentiated treatment for such customers so that we can have these recognized later on. In addition to our participation in all public hearings and concentrations both in the National Water Agency as well as ARSESP.

Operator

This slide tries to summarize. There's a lot more to be said. Everything that we committed to during the beginning of the year and what we have implemented or completed or still in implementing. Let's move on to the next slide. I'll be very brief here.

Operator

Where are we in the project. The privatization, there was a Phase 0 that has been widely announced and discussed by us and by the government. And the macro topics we define about privatization. We're now in Phase 1 of the project. It's very intense in terms of decision making, definition of models, due diligence, valuation of the company, the adherence of the City of Sao Paulo the change the regulation of URAI.

Operator

Now its national governance is proportional to the size of the municipalities and sending notifications notices to the municipalities. This was sent by the state government detailing what is the potential for improvement and gains by everyone, customers, the company, municipalities and the society as a whole that will come from privatization. And along with this notification, day center presentation of the extension of terms and the anticipation of goals for the universalization of services. Last month, the bill, privatization bill of law was sent to the House of Representatives of Sao Paulo. And the government expects that it will pass until the end of the year.

Operator

And the government is working a lot for that to happen. Of course, here at the company, we are providing Aldus' support so that it can happen in that time frame and we can continue with the project. We have started an in house analysis and we expect to complete this selection of banks that will participate in the syndicate of banks. And then Once that is approved and passed, we'll structure the offering that will happen in the first half of next year. Phase 2 will include the new governance, a resolution, election in the URAI, the regional unit for water and sanitary sewage.

Operator

The new bylaws of the company will be defined based on the reduction of the government's share and the transfer of control of the company from the government to a private company. We are working already and we're talking to creditors and banks that were part of the debenture issue to understand what's the best time to start the consensus for the waiver to obtain the waiver from creditors that we'll finish with the offering by the company. Something we haven't not yet is the regulation model that will be enforced as soon as the control is transferred. This is led by the IFC as well as by the government of the state, and we try to contribute as much as possible. And I know that many of you investors have anticipated in conversations with IFC and the state suggesting ways to improve regulations.

Operator

We know that this has a high impact on the value of the company and on the performance of the investments that we need to make. We are carefully looking into that. We're very happy on our side working heavily in this turnaround In this change of profile, transforming the company, making it closer to customers, we Are very responsible and committed to complying with the goals and meeting the goals. Everything has a positive impact on the environment, on the concept of climate resilience and to capture all the potential we can for the benefits that this agenda could bring for the company and its value. And we are making a long term plan for efficient capital allocation, value generation and hydro efficiency.

Operator

So I would like To thank you again for your support, for all investors who have helped us in this journey. And this is actually the first quarter in which we start to see all the effort in concrete terms. First, we had the beginning, the stabilization off the basis. And then we started implementing all our vision in terms of efficiency gains that tends to materialize in the medium term given the size of the company and its type. We have long term contracts.

Operator

So everything will materialize in the coming months. Thank you very much, and I will be back to you to talk soon. Thank you, Andre. Now Katja will talk about the results. Good morning, the Interverio, good morning, Andre.

Operator

Good morning, ladies and gentlemen, everyone. I'll talk about the financial performance. Let's start with the operational performance. We continue to see a growth in volume. We've we had that in the Q2.

Operator

This growth became even stronger in the Q3. We had a growth of 3.3% in basically all segments, residential, commercial and industrial and public. And when we look giving transparency. In this presentation, in our releases, We always show year to date. So we've been it's now we have the data from 9 months of the year with the comparison to help to better understand our figures.

Operator

So year to date, we have 2.1 build, total water volume build, new connections. In this Q3, we see a concentration May. Most of the growth comes from volumes above 10 cubic meters, because we start looking not only at growth, but growth looking for an average tariff that's better for the company. Next slide, please. When we talk about Sewage, the growth also took place above the water, given our commitment to advance in sewage implementation.

Operator

So we are closing this quarter with 3.7% growth in TUI. And when we look at year to date, it's 2.7%. Again the same analysis we make for water, we make for sewage. So growth accompanies that of water. And when we look at the bar graph, we can see volumes above 10 cubic meters that contributes in a consolidated way to the growth of the company in terms of billing.

Operator

In Sewage, We grew quarter on quarter by 100,000 new connections. We are advancing on the universal utility services provision agenda and increasing allocation for sewage because of that goal. Now financial data. When we look at revenue, quarter on quarter, we have grown 10.4%. Part of this growth comes from volume.

Operator

So the average volume growth was 3.5 percent. And we also have a growth that comes from tariff adjustments. The tariff review happened in May, and So there is an effect that comes from volume, tariff adjustments and also mix because We are growing in the consumption is growing in the areas where tariffs are better. This is reflected on consolidated figures. Year on year in the 1st 9 months, we can also see that a growth of 14 0.1% in our revenue.

Operator

When we look at EBITDA and EBITDA margin, we go from 2.1% in 2022 Q3 and to 2 414. We grew 3%, 13% quarter on quarter in EBITDA And year on year, 24.3 percent, it's a significant growth, shows that showing all the initiatives that company has taken. Of course, it's a journey. And in some areas, results are obtained faster. Others take longer to appear.

Operator

When we look at net income and net income margin, there was a drop when compared to the same quarter in 2022 of 21.7% and in the year 5.7%. When we compare periods that are events, for example, one important event in the Q3 of 2022 that is non recurring of BRL 325,000,000. So that alone, If we exclude that, we would be pretty much at the same level of last year. That was a adjustment for inflation of a debt we had with the government, state government. We had to adjust that in 2022.

Operator

It was recognized in 2022 and contributed to financial result in 2020 2. Looking at the year, this also materializes and this effect of 2022 is carried forward when compared to 2023. The next slide shows what we did. We come from a net income of 1081 net income in Q3 2022. We grow and it's a neutral result of construction.

Operator

When we look at costs and expenses, there is a decrease of BRL 303,000,000 and other revenues and expenses BRL7 1,000,000. End financial results, that's what I explained previously. SEK 325,000,000 came from a non recurring event in 2022, which explains part of this difference. In addition, BRL101 1,000,000 in financial in net financial expenses, of which BRL26 1,000,000 refer to new debt made, loans made in July last year May of 2023 bid invest. We also had BRL 8,000,000 coming from increase in interest rates.

Operator

When we look at interest low ends in foreign currency, especially in U. S. Dollars, our rate is super. So there was an inflation pressure. We went from 2.12 to 5.27 quarter on quarter.

Operator

There was an impact also of foreign exchange variance quarter on quarter with an effect from last year in which the Brazilian real was the depreciated when compared to the yen. So the revenue that was captured in 2022 now has stabilized end this year. In this account, we there are also updates regarding lawsuits. Every quarter, we update that these lawsuits with our legal department and that our also performance agreements expenses. So in general, this explains our financial performance.

Operator

Income tax is EUR126,000,000 which is expected. It's higher because we had a better income or rather expenses were higher with a net income of BRL 846,000,000. This is a general view quarter on quarter of our financial performance. Next, now because you investors asked, This is to explain the journey more clearly. So it's the same period year on year, 1st 9 months of 20222023.

Operator

So we come from BRL2479 in net income. There's an increase of RUB1,800 in revenue. Then costs and expenses, It would be also a nonrecurring expense that is the layoff program. Other operating expenses, EUR 73 favorable. In financial expenses, EUR 837,000,000,000 the EUR 547,000,000 that I mentioned before.

Operator

And the difference is exchange variance and interest expenses on our loans. Income tax and social contribution, EUR 93,000,000 positive, reaching a net income of EUR 2 337. This is the overview looking at the 1st 9 months of 20222023. Now going into details about operating expenses, When we look at personnel, there has been a growth quarter on quarter of 4.7 Sandd, we're basically growing BRL15 1,000,000 due to health plan expenses, both based on use and cost. There was an increase in cost in the beginning of the year and also an increase in the use of considering that we have a dismissal plan that employees will leave until the end of next year, they may tend to use their health insurance as much as they can while in the company.

Operator

In terms of expenses, there was a growth of BRL15 1,000,000 that If you consider the expenses of personnel that was neutralized by many people that left the company, the 3.7 percent reduction in our staff. And we are still cannot see the such a strong effect in the first quarter, because there's a lot of concentration of people who left in August September and the expense was not accounted for and they will be shown in next quarters. Although we have almost a linear distribution of exits, there are people who have higher salaries that are scheduled to leave in the first half of twenty twenty four because we need to ensure the transfer of knowledge and transition of processes as well. But from when comparing September to August, we see reduction of BRL3 1,000,000 in the salaries account. So now is for this to go down.

Operator

We can still see some effect in the health insurance account. Materials, we had a reduction of BRL 12,000,000, 10%. It's a small difference, but we believe it comes from movements that happened to the services account. There are 2 possibilities, buying services or materials and we can buy services and materials. This based on the contract analysis, we have contracts to build to buy materials less than we had in compared to 2022.

Operator

So much of the materials we used to buy, now we're buying services and materials. So it's important to look at these accounts on a consolidated way. The same thing happens with the services and personnel. That's a positive effect of 10.4%. Material for treatment, there is a drop, which is a positive effect.

Operator

What explains that? We have a reservation level of 74%, so we can manage the use of water, which allows us to choose better quality water such as coming from Cantareira to supply that leads us to a lower demand of chemical products. But we also see a trend in the decrease in the prices of treatment materials, especially the most significant ones in terms of consumptions with the drop in prices. And also, the management team and operations team is working to look for other products to replace the ones we usually use, so that we can benefit from this change in the prices in the market. It's not only a full reservoir, but there's also an effect of good management of the company.

Operator

In terms of services, there was an increase in R89 1,000,000. There is an increase that comes partially from pavement refurbishing of roads, BRL30 1,000,000. And a specific point here, this growth came in the Q3 because We were not doing as demanded in the beginning of the year. An important supplier is no longer working with us. The agreement was broken, as we mentioned in our last call.

Operator

And we had little time to make a new agreement. So we had a liability to be served and this liability all these commitments that caused a BRL17 1,000,000 impact on this curve. This was specific and one off event in terms of expenses we should have had in the 1st and second quarter and we didn't. There was no contract. And if we don't have a contract, we cannot make the provisions.

Operator

So part of these expenses of Services in terms of IT and Consulting Services. We are in a restructuring phase of the company. Some consulting companies are working with us, looking at IT road map, future for the next future vision for the next 3 years. We have consulting company working with us in team restructure personnel. And we also have consulting companies working with contract modeling.

Operator

So all of this is taking place now, all these expenses, so that we will have the benefits in the future. So this is a lot of work that happens before the journey of obtaining the result. BRL 11,000,000 that we pay for collection companies. So BRL 11,000,000 in collection companies that help with us to recover defaulting customers. And there is also an amount for new connections and maintenance.

Operator

When we move to electricity, we're moving sideways here and we're able to see an effect of reduction in consumption of almost 10% in our demand, because we have a reservoir level that is high. So that allows us to use less energy. However, on the other hand, there was an increase in tariff both in the regulated market and the free market, 5.9% 11%. So this mix of increase in tariffs and reduction of consumption, the impact was only 2.4% in the electricity bill. Moving on to general expenses.

Operator

Since the last quarter, we have explain what is the transfer of municipal fund for greater transparency. There is a growth in this municipal fund, especially given the growth in revenue, that's the main driver of growth, as well as the new municipalities that entered. The main impact we have in general expenses refer to lawsuits. Each quarter, the legal department of the company does an evaluation of expected losses and the reassessment made this quarter increased the provision BRL78 1,000,000. There is a new not new lawsuits, but they were classified as possible losses this in the Q2 and now it's a probable loss according to the legal department.

Operator

In terms of depreciation and amortization, we see a significant growth of almost BRL100 1,000,000. That is basically reflects all the investment effort made by the company. Behind this, we have BRL6.4 billion in property, plant and equipment. This we are investing and increasing our depreciation and amortization account. When moving to allowance for doubtful accounts, Although there is a growth of 15%, Essentially speaking, we are very close to what we were, how where we were in the Q2 of 2022, but we see a reduction of BRL50 1,000,000, which comes from an effort to curb default, as we call structural effort to strengthen our collection efforts, know our customers and act on it, not letting a delay in payment become a vote.

Operator

This is something we're doing very well, focusing on the 1st 90 days to ensure that this is not this does not become an allowance for doubtful accounts. We added only when it's 370 days. So If these collection efforts are completed within 90 days, the lower the fewer defaulted customers go to the allowance for doubtful accounts. There is also an effort to recover and to collect those defaulting accounts and we are benefiting from that. There is a lot to be done still in terms of change of behavior with customers.

Operator

And this large fair that we did for collection is an effort. Other companies in the market do that in order to compete for funds of customers and make sure that we get paid. We must have that event to ensure that the indebted families in Brazil are still highly indebted. So it's important to compete for those additional funds that may come to capture and reduce our default rate to a controlled level. So we had a positive effect there.

Operator

Tax expenses have dropped by 2.1%, But in terms of financial value, it's the same. This is the year view. Personnel, there is a large growth when we consider the dismissal program. Excluding that, it's 7% looking at the 1st 9 months of 2022 and 2023. For 2023, there is 12% of the collective bargaining agreement that's been carried to 23% plus the 4.9% in May.

Operator

So this will be diluted or reduced in time because of the dismissal program. In general supplies and treatment supplies, expenses are dropping due to our efforts. Services, This is basically due to consulting fees, asphalt and pavement expenses, connections and electricity is neutral end. General expenses growth in the 9 months is explained by the fund and lawsuits. What happened in this quarter explains most of this difference.

Operator

Depreciation and amortization is follows the same trend. Allow us for doubtful accounts, we see a significant drop quarter year on year, we go from 4.1 to 3.4 in the 9 months of 2022 to 2023. In terms of investment, in this quarter, We had BRL1.4 billion in investments and accelerating this CapEx movement there was a disbursement of cash of BRL752 1,000,000 in the 1st 9 months of this year. We invested almost BRL 4,000,000,000 in 9 months, and we are accelerating the most we can to ensure that our goals are met. This the bottom of the slide shows how investments are made, mostly into sewage collection and treatment, and that's the trend for the next 5 years.

Operator

The main highlight here is Cheete, Cantarere, Peixote and the North Coast. And the focus is the universalization target so that we can close the tariff review cycle in 2024 with the most of our commitments met. Looking at these connections and loans and financing in terms of net debt versus adjusted EBITDA, 2.2 to 2. Basically, this drop give is due to an increase in EBITDA and the same is reflected in the adjusted EBITDA. There was an increase in coverage and increase in EBITDA.

Operator

We have 13% of debt in foreign currency and half yen and half dollar. Basically, because the yen is in the amortization repayment stage the end expenses and dollars are still in the investment stage. Okay, this is it. This is what I had to say. Now I turn the floor over to Chiberio for the Q and A session.

Operator

Thank you, Katja. Let's now start the Q and A session. Before, I would like to start say that the first part is for analysts and investors, and then we'll open for journalists. Questions should be asked in writing on the chat box. Carolina Canero has 2 questions.

Operator

First is about allowance for doubtful accounts. Could we consider improvement on this improvement as recurring, what would be the level of that that we should consider? And the second question is, the company was working with the regulator discussing several topics as well as some costs not included in the tariff. Did we have any development in such conversations? So one question about doubtful accounts and the regulatory environment.

Operator

I can start here. When we talk about allowance for doubtful accounts, the fair, this collection event brings benefit. We'll continue to do that to make the wheel turn Until we haven't treated all the structural aspect, we are making actions with our customers to understand what works for them. A structural work is not something that has a quick return. Return the results will happen, but gradually.

Operator

So this collection fair is something that helps bring customers to the table to have a negotiation. So we're looking at this doubtful accounts is based on debt from the past. So when we compare to a higher revenue, the percentage is lower. So we are focusing on the collection rule to ensure that 90 days default will become will be collected as soon as possible in order not to become doubtful accounts. But we want to keep the collection efforts consistent.

Operator

So when I compare that revenue is growing to higher average tariff and higher volume. So we look at doubtful accounts as something from the past. In the collection fair, we opened for debts starting at 70 days. And many of these negotiations for settlement were of debts, they were still not in the provision of our balance sheet. It was good for results.

Operator

It's good for cash, but we ended up getting paid on debts that are short term debts. We still have the challenge of going back to this event and see what we have to do differently to have older debts paid. That's that have an impact on our balance sheet this year. When we talk about expenses in the cost of electricity core costs here, we're talking to the regulator. There was a major debt the company had with the commercial issue the company has worked on the last 3 months looking at our sales program, seeing how we could build on that with the technical structure and for the firm demand program, so that we could present it to our regulatory agency.

Operator

This was done in the end of September and now we're waiting for their answer. We provided all the technical support in terms of the tariff structure and the beneficial effect it would have on the company. So for the population to have a firm demand contracts in the company. In the expense account, we look at what how we can get closer to the regulator by our regulation team. Andre, now it's you.

Operator

I think, Katja, I believe you have addressed both topics. On our side, we're doing everything we can to accelerate the GAAP reduction process either by having conversation with Arcespi, showing them what's feasible, our investment capacity And this effect of this considering not no longer considering some expenses line is something that affects us because we cannot afford not to have those expense lines. And so we're working to bring to find an alignment between what we find more reasonable to be able to deliver on what we are required to do. We sent this proposal to SESP, and we are now detailing the program to make sure that for each segment, there is a rationale. And then SESP will analyze it.

Operator

If they find it if they agree with it, they will rectify it and then we recognize these programs as part of our cost structure. Reprocessing of invoices it's something Karol didn't talk about. This was a topic or rather that Caro asked and we didn't answer. This there was a difference in reprocessing and we are Since the Q1, we are collecting this considering the revenue, sending to Arcespy the net revenue data without reprocessing costs. So this 97.5 will imply a tariff offsetting if we perform below the level established by Arcespi.

Operator

Thank you, Andre. The next question comes from Guilherme Lima. I believe you have answered his question. If Guilherme understand that his question was answered are not answered, he can tell us again. So let's move on to the next one.

Operator

Could you the next question from Guilherme. Could you give us an update on the option to define the regulatory model for private company? We've seen the government's position discussing the current change of the current model from forward looking to backward looking. How is the discussion of the bill for the regulatory bill? So Guilherme, again, if you let us know if your question was answered.

Operator

As for regulation, the company is working according to the current rule. What's happening in parallel in the context of privatization is structured conversation led by IFC along with the state government, Natalia from the Secretariat of Logistics Infrastructure and Environment and Rafael SPI to look for the leverage to improve regulation. They have announced what we seek and part of that is reflected in the contribution of SPI and the public hearing at SABESP. What we believe is that there is room for improvement for the population. The adjustment of CapEx recognition is something that compares to what currently exists in the electricity industry, but no decision was made so far.

Operator

What we expect is that these conversations become more intense in November and that will have a definition until the end of the year of the model. And then we'll this new structure that aims to align shared efficiency gains, having a higher certainty level in shared revenues and the investment plan we have to make. But there is a whole process to take place still for it to be approved. This is a work in progress and there is no decision as to the detailing of the improvements. Okay.

Operator

Thank you, Andrea. Next question from Marcelo Do you have any idea of the impact on the tariff discount for customers? Then the other question is about the contracts. You mentioned as if it was going to happen in the next phase only after January. But in the event, Natalia is saying that she was working to sign it this year.

Operator

Could you imagine that it's possible to sign contracts with the most important municipalities still this year? Will the regulatory issue be reflected in the agreements with the municipalities. We don't disclose details of commercial discount, Marcelo, because this is a commercial issue of the company. As for the signing agreements with the municipalities, what I understood from the structure that was built is that the structure for the agreement to be signed, We need to have a meeting of the collegiate of municipalities, the meeting of the Board, the executive. And if this agreement is approved, then it will be signed by the representative of Yurei they will be appointed in the process.

Operator

It's possible that municipalities state their opinion until the end of the year to agree with the privatization? Yes, of course, that's highly desirable. We're working at that agenda. The teams of the company Regulatory Investments, Natalia and the team of the Infrastructure Secretariat are having weekly meetings, many meetings to explain to all city halls of 375 city halls the investment plan, the benefits that we can the process can bring to each one of them. So we would like the most of the municipalities to express their opinion by the end of the year.

Operator

And the details, the step by step was extracted from a presentation of the state government. So I believe that it's in agreement with what we planned. He completed his question asking us to confirm if we're going to sign a single contract for Rurai and not a contract by municipality. This is what we understood based on the statements and what everything on everything that's been discussed in the project. A single contract signed by URAI.

Operator

But this needs voting process from the municipalities in electing the committee of Yurais as well as the executive at the executive level. Okay. Thank you, PISAS. So there are no further questions so far. And I remind you that if you want to ask a question, please use the Q and A box.

Operator

Call. I'll wait for a few more seconds. We give priority to investors. If there are no further questions investors will start answering the questions from journalists. Aaron Rim asks, if the IDP expected to deliver a 15% reduction of the salaries, payroll charges and benefits P and L line item by June 2023?

Operator

If not, When is the full reduction expected to be realized? No. We expect the full appropriation of the benefit reduction from the exit of people to happen as of July 2024. The IDP program. Aaron has a schedule of for people to leave that started in July 2023 that will happen until June 2024.

Operator

So throughout this period, there is a growing impact of reduction of expenses with benefits from personnel line, but this full benefit will really be seen as of July 2024. We have the Q and A page open for investors. Since there are no further questions from investors, let's answer the journalists' questions. First question from Taisirata. Hello.

Operator

About discussions of changes in the regulation of privatization. 1, what have the government or IFC actually proposed? 2, what are the necessary steps to formalize it? Will the law need to be amended? Well, the best vehicle to answer the question is the government or IFC.

Operator

What we know is that there is a desire to improve the regulation mentioned by the reporter and the Secretary that's being discussed with IFC. I cannot I don't have the details of each of the steps, but I know that each event goes through ARSESP to analyze the merit of the proposal. But I don't foresee any changes in the law, because there is a regulation that says that the regulation is made by Arcespi. What may happen is that part of the regulation being reflected in the agreement. So a part of the agreement may reflect some items that are purely regulation today to increased safety during this journey, this contract may include some of these points if the government finds it convenient.

Operator

Thank you, Andrea. The next question is from Bruno Andrade. The privatization of SABESP has been questioned by the opposition after the blackout in Sao Paulo after a strong windstorm. The privatization of SABESP foresees a better regulation in case of longer delays in the supply of water for consumers after some accident? Will there be established deadlines?

Operator

I think it's natural for these for people to question that this event impacted every one of us and SABESP had a blackout in some of its facilities as well. So If the privatization we believe that privatization will be beneficial, there are several sectors, including the power sector has evolved a lot after the privatization. What in terms of the debate by the population is what are the best models In terms of regulation applicable to our case, regulation is robust. It provides the flexibility of investments in more severe moments. The best example that's a good regulation is in the water crisis.

Operator

There was a very extreme environment or climate event. And the company was able, based on a lot of cooperation with the state, the government, the granting authority to organize itself and face the problem. The regulation includes that type of effort, our investment plan is very robust, focused on the medium and long term on water resilience. And We are anticipating an increase of water availability throughout this journey. One example are the desanalization plants at the coast that will help build resilience because the water supply it's based basically on based on rivers and that are events that happen and that harm the water availability.

Operator

So we're increasing that water availability, enlarging the connection between Santos and Sao Vicente and Guaruja. There are many efforts made to reduce the dependence on events and also increasing resilience and the communication among the metropolitan area of Sao Paulo. The Cantareira system was responsible for supplying water to half the metropolitan area after many interventions inside the metropolitan area. Now cities can be supplied by other system Alto Chete, Cochia, Sao Lourenco, Guarapiranga billings. So the dependence was to be 50% at the best and now it's only 1 third.

Operator

That allows us to manage the availability of water in these reservoirs. And there is also a connection among them. We are able to pump water from one reservoir to the other, rebalancing the level of water so we can have a uniform supply in the metropolitan area. So there is room for improvement, but it's a robust regulation. This is being analyzed by the IFC and the state government to reduce the time of service in case of crisis.

Operator

Okay. This was the last question. I believe there is one last question by Thais. Okay. I'm sorry.

Operator

How is the crisis with Enel Sao Paulo. How can the crisis within Enel Sao Paulo, the electricity company, impact the advancement of privatization with SABESP. Well, Thais, I think the debate shed light on the regulation model. How can a private concessionaire have a supervision and alignment the level with the provision of services. There are several differences between the electricity sector and the sanitation.

Operator

First, the granting authority is municipal. For the metropolitan area, it's a shared granting authority between the state and the municipality. But There is a difference between the municipality, which is closer to the citizen. The regulation is state and it's much clear and easy to identify any problems and correct them if necessary. So the debate will happen.

Operator

It's only natural. It is our role the as a company and the state government role to explain the difference and shame that it's a good project and the regulation could be improved to ensure perpetuity and any problems in the reduction of provision of services. And in the event of any atypical circumstance the population will be served as quickly as possible. This debate is taking place. If they ask us, we will provide the necessary clarification.

Operator

And my feeling is that the process will continue after these clarifications are made. Okay. Thank you, Andre. Now there are no further questions. Now I would like to turn the floor over to you for your final remarks.

Operator

So once again, I would like to thank you all, thank the company, the employees and associates. This has been a very rich year in terms of challenge, changes. It's a very impressive company. It's really responds well when seeing the purpose and the rationale for transformation. I would like to congratulate my C level colleagues and also congratulate all employees of the company, employees who've been with the company for many decades that are embracing this project that build this new company every day to make it a more modern company closer to people with a broader view of our role as a public utility concessionaire to take to bring quality of life to the population.

Operator

So I would like to thank investors, all those present here for listening to us and contributing to this journey of creating a company that's a benchmark in Brazil and as well as worldwide when we speak of sanitation, innovation and new technologies. Thank you, everybody.

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Earnings Conference Call
Companhia de Saneamento Básico do Estado de São Paulo - SABESP Q3 2023
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