Repositioning in view of thenew regulatory frameworkThe implementation of a regulatoryframework for the water and waste industry(Federal Law 11445/07) and the creation ofthe São Paulo State Sanitation and PowerRegulatory Agency (ARSESP)–State Law 1025/07—radically change the regulatory environment where weoperate, increasing competition in the industry, creating newchanges and new opportunities for <strong>Sabesp</strong>.Guarapiranga dam.In addition, we have increasing expectations in relation to the water and wasteand environmental preservation services, which require more investments, agilityand innovation. To adjust <strong>Sabesp</strong> to this new scenario, we have scheduled actionsaround our four modernization pillars: environment, regulation, new businesses,and innovation. Several actions have already been implemented regarding thefirst three pillars:• Environment: creation in 2007, of the Environmental ManagementSuperintendency, deployment of programs such as Abraço Verde (Green Hug)and <strong>Sabesp</strong> 3Rs that can be seen in detail in the chapter on the environmentand launching of the <strong>Sabesp</strong> Environmental Solutions platform products andservices, detailed in the Section on economic and financial sustainability;• Regulation: creation in 2008, of the Regulatory Affairs Superintendency, trainingof professionals in the application of regulatory accounting and implementationof tariff policy easing actions to grant <strong>Sabesp</strong> market competitiveness;• New businesses: creation in 2009, of the New Businesses Superintendency,establishment of several cooperation arrangements with state-owned andprivate sector companies in Brazil and abroad, and development of projectsof new water and waste businesses to increase revenues and incorporate newtechnologies and private capital in to <strong>Sabesp</strong> investments.This modernization process will be consolidated by strengthening, in 2010, the Research,Development and Innovation (RD&I) function, which will be responsible for:i. inventorying and disseminating the technologies existing at the Company;ii. develop an intellectual property protection policy;iii. coordinate technology alliances and cooperation arrangements for the developmentof research in <strong>Sabesp</strong>’s area of interest; andiv. assist in the formation of products that can be sold using technologies developedat <strong>Sabesp</strong>.Regulatory affairsAfter structuring the Regulatory Affairs function in 2008, when we created a relatedsuperintendency and committee, during 2009 we started to implement best regulationpractices and disseminate a regulatory culture at SABESP.There were important progresses regarding the challenges of the regulatory framework,with higher integration between Arsesp and <strong>Sabesp</strong> the preparation of regulations.Debates and technical studies are essential to enhance the new regulatory frameworkand create more opportunities in the water and water industry.62 63
Some of 2009 highlights are as follows:Freedom to negotiate with large customers: After preparing a technical study andseveral discussions with Arsesp, we were authorized to negotiate prices withlarge customers, whose demand exceeds 500 m³/month, under specific contracts.This freedom is crucial to ensure we remain competitive in this market segment,where we face the competition of artesian wells, customized solutions, and waterdistribution using water trucks.Tariff revision: in 2009, Arsesp initiated the discussion of a new methodologyfor the calculation of the tariff adjustment, which, according to a note issuedby the regulator, will be fine-tuned in 2010 and applied in 2011. The objectiveis to create a new adjustment methodology by enhancing the criteria used andcreating sustainability and economic and financial balance condition for theservices provided.Since 2003, <strong>Sabesp</strong>’s tariff is adjusted using a parametric formula that considerstotal company costs, where manageable costs are revised using the ExtendedConsumer Price Index (IPCA) and non-manageable costs are revised based onactual changes in costs between calculation dates.The proposal made by Arsesp provides for a different methodology. The mainchanges refer to the calculation of the adjustment using regulatory costs,inclusion of productivity gains—that reduce the return base—including in thecalculation formula the concept of return on operating assets base adjusted forinflation, and the calculation of the Weighted Average Cost of Capital (WACC),which is applicable to the return of the asset base.Regulation: In 2009, Arsesp enacted two Resolutions. The first was theinfringement and penalty regulation for water and waste service providers. Theregulation basically sets out the penalty system and the amounts of fines tobe imposed to the concessionaires in case of noncompliance with prevailingstandards and legislation. The regulation preparation process involved publicconsultations, and we contributed with several inputs. The regulator also issuedon November 14, standards that set out the general terms and conditions for theprovisions and use of water and waste utility services. This basically addressesthe standards that govern the business and operational relationship betweenutility operators and users.New businesses2009 was very important for the New Businesses function, with the creation of arelated Superintendency and the signature of several cooperation and partnershipagreements: Note that in 2007-2008, <strong>Sabesp</strong> already worked in the prospection ofopportunities and closed important cooperation deals with other, including: Casal,of Alagoas; Cagepa, of Paraíba; Corsan, of Rio Grande do Sul; and Cesan, ofEspírito Santo.New arrangements were entered into in 2009, such as the <strong>Sabesp</strong> technicalcooperation agreement with Caesb of Brasília and Casan of Santa Catarina.In January 2009, <strong>Sabesp</strong> entered into its first international cooperation agreement withInstituto Costarricense de Acueductos y Alcantarillados (AyA), of Costa Rica. Duringthe year, the trend accelerated and <strong>Sabesp</strong> entered into other international technicalcooperation agreements, namely with Agbar, of Barcelona and Mekorot, of Israel.These cooperation agreements proved to be quite effective to exchanging experiencesand know-how between different companies, and prospect new joint ventures. Forexample, the partnership with Agbar allowed us to know the Spanishcompany’s research and development structure and use part of theirinstitutional model to strengthen our own innovation function. It wasalso possible to deepen, through technical visits, the knowledge in thefiltering membranes and sludge drying areas.The increase of our activities abroad was not restricted to cooperation agreements.The consortium formed by SABESP and Latin Consult won the international tenderbid held by Instituto de Acueductos y Alcantarillados Nacionales (IDAAN), withthe support of the Inter-American Development Bank (IADB). This consortium willoperate as consultant in a rational water use program and the implementation ofa new commercial and operational management model in the central provinces ofPanama. The agreement amounts approximately to US$8 million.<strong>Sabesp</strong> also consolidated its position as a competitor in the water and waste market,and we filed two bids in tenders organized by the State of São Paulo and one atinternational level. The final decisions on these tenders should be made in 2010.The New Businesses function also contributed to <strong>Sabesp</strong>’s efforts to ensuring thereturn on assets and develop environmentally sustainable solutions.<strong>Sabesp</strong> entered intoits first internationalcooperation agreementwith AyA of Costa Rica64 Relatório de Sustentabilidade 2009 65