The regulation of public services in Brazil, in its current form, began to take shape in the 1990s, particularly following the enactment of the Concessions Law (Federal Law No. 8,987/1995) and the establishment of the country’s first regulatory agencies. In 2007, Federal Law No. 11,445—widely known as the Basic Sanitation Legal Framework—introduced national guidelines for the sector, leading to significant institutional reforms. Within this context, the São Paulo State Public Services Regulatory Agency (ARSESP) was created through State Complementary Law No. 1,025/2007. ARSESP is responsible for regulating, supervising, and overseeing public services under municipal or shared jurisdiction.
In June 2020, Federal Law No. 14,026 updated the sanitation legal framework, setting ambitious targets for universal access: (i) 99% of the population with access to potable water; (ii) 90% with access to sewage collection and treatment. These goals are to be achieved by December 31, 2033.
To implement Article 8 of Law No. 11,445/2007, the State of São Paulo enacted Law No. 17,383/2021, which created four Regional Water and Sewage Units (URAEs): Southeast, Center, East, and North. URAE 1 – Southeast includes 375 municipalities, of which 371 signed a unified concession agreement with Sabesp.
Compensation for water and sewage services is based on tariffs, which are subject to periodic or extraordinary reviews and annual adjustments. These follow a methodology defined in the concession contract and, secondarily, by ARSESP (São Paulo State Public Services Regulatory Agency).
As of July 2024, for the 371 municipalities operated by Sabesp, this methodology is governed by Concession Contract No. 01/2024 of URAE 1 – Southeast, which changed the frequency of Periodic Tariff Reviews from every four years to every five years. The next Periodic Tariff Reviews are scheduled for November 2029 and November 2034, with annual adjustments applied throughout each cycle.
Periodic Tariff Reviews aim to recalibrate tariffs to ensure they adequately cover the costs of operating, maintaining, and expanding services in an efficient and prudent manner, as stipulated in the concession agreement. Annual adjustments are designed to maintain tariff balance and are calculated based on: IPCA (Brazil’s official inflation index), deducted by X-Factor (efficiency gains), Q-Factor (quality incentives) and U-Factor (universalization targets).
Until the end of the second tariff cycle in 2035, adjustments will consider IPCA, Factors Q and U, with X-Factor embedded in the OPEX calculation. Additionally, annual adjustments must include updates to the Regulatory Asset Base (RAB) and the reference market (volumes and connections). From 2036 onward, annual adjustments will be based solely on IPCA and Factors X, Q, and U.
In addition to the municipalities covered under URAE 1 – Southeast, Sabesp continues to operate in Miguelópolis, Nova Guataporanga, Quintana, and Olímpia through program contracts and/or individual concession agreements.
The Concession Contract No. 01/2024 replaced the 371 previous agreements Sabesp had with municipalities within URAE 1 – Southeast. This unified contract standardizes the execution methodology and introduces key provisions, including: (i) Acceleration of universal service coverage, now targeted for 2029; and (ii) Extension of the contract term, now set to expire on October 19, 2060. Annual universalization targets and investment commitments for each municipality are individually detailed in Annex II of the concession contract.
