Regulation

The regulation of public services in the current model was developed in the country during the 1990s, particularly after the Concessions Law (Federal Law Nº 8,987/1995), when the country’s first regulatory agencies were founded. With the enactment of Federal Law Nº 11,445, in 2007, also known as the legal framework for basic sanitation , which establishes the national guidelines for basic sanitation, the sector has undergone institutional change and, within this context, by means of Supplementary State Law Nº 1,025/2007, ARSESP – São Paulo State Public Services Regulatory Agency was created with the purpose of regulating, supervision and inspecting the services offered and delegated by state and municipal authorities under the terms of Federal Law Nº 11,107/2005.

In June 2020, Federal Law Nº 14,026 was enacted, which updated the legal framework for basic sanitation and assigned to the National Water and Basic Sanitation Agency (ANA) the power to edit reference standards on sanitation services.

The Federal Law Nº 14,026/2020 also vetoes the signing of new program contracts and required companies to prove their economic and financial capacity, according to the Federal Decree Nº 10,710/2021, to achieve the full coverage of water service and 90% of sewage collection and treatment service by 2033.

Also as an implication of the Federal Law Nº 14,026, the government of the State of São Paulo enacted Law Nº 17,383/2021 creating 4 URAEs – Regional Unit for Drinking Water Supply and Sewage Services (1-Southeast, 2-Center, 3-East, 4- North). URAE 1 – Southeast comprises 370 of the 375 municipalities operated by Sabesp.

Remuneration for water and sewage services is done through tariffs set by ARSESP during ordinary four-year revision, or extraordinary revision, and annual tariff adjustments. While tariff revision address the recomposition of tariffs so they can cover operational costs, maintenance and expansion considering an efficient regime for expenses and a prudence regime for investments, according to the rules determined by the ARSESP, the readjustments are intended to maintain the tariff level by applying the inflation (IPCA) variation, deducting the X Factor, in order to share efficiency with users, and is also adjusted by the Service Quality Factor (IGQ), which can be positive, null, or negative according to the results obtained versus the goals established by Sabesp and approved by ARSESP.

SABESP’s current tariff structure consists of tariffs according to categories of use, residential, commercial, industrial and public, and within these categories there are special tariffs for users with less purchasing power, such as the social tariff and vulnerable (only in the Metropolitan Region of São Paulo – SPMR), for social assistance entities and public administration entities that sign a contract with SABESP for the implementation of the Rational Use of Water Program – PURA. In 2021, Arsesp approved a new tariff structure to be implemented in 2022: (i) new classifications for residential customers (Residential, Residential Social, Residential Vulnerable and Residential Collective) and non-residential customers (Commercial, Commercial Assistance, Commercial Collective, Industrial and Public Wholesale, Water Truck, Sewage Cleaning Truck); (ii) different prices for water, sewage collection and treatment sewage services; (iii) the unification of our pricing schedules, which partially reduces subsidies between the regions; and (iv) the charging of a fixed component that reflects fixed costs per connection and another variable part that reflects consumption (a binomial price). On March 2022, ARSESP postponed the adoption and a new tariff structure will be  implemented following the public consultation scheduled for the first half of 2024.