The regulation of public services in Brazil, in its current format, began to develop in the 1990s, especially after the enactment of the Concessions Law (Federal Law No. 8,987/1995) and the creation of the country’s first regulatory agencies. In 2007, with Federal Law No. 11,445, known as the legal framework for basic sanitation, national guidelines were established for the sector, resulting in significant institutional changes. In this context, ARSESP (Regulatory Agency for Public Services of the State of São Paulo) was created, through State Complementary Law No. 1,025/2007, with the function of regulating, controlling and supervising public services owned by the state and municipal governments, delegated in accordance with Federal Law No. 11,107/2005. In June 2020, Federal Law No. 14,026 updated the legal framework for basic sanitation, assigning the National Water and Basic Sanitation Agency (ANA) the responsibility of issuing reference standards for the sector. In addition, the new legislation prohibited the signing of new program contracts and required service providers to demonstrate the economic and financial capacity to achieve universal water supply and the goal of 90% sewage collection and treatment by 2033.

In response to Federal Law No. 14,026/2020, the government of the State of São Paulo issued Law No. 17,383/2021, which created four Regional Water and Sewage Units (URAEs): Southeast, Center, East and North. URAE 1 – Southeast encompasses 375 municipalities, of which 371 adhered to the concession contract with SABESP.

The remuneration for water and sewage services is based on tariffs, which are periodically reviewed in periodic or extraordinary review processes and adjusted annually, following a methodology defined in the contract and, subsidiarily, by ARSESP.

As of July 2024, for 371 municipalities operated by SABESP, this methodology was established by concession contract no. 01/2024 of URAE 1 – Southeast, changing the frequency of Periodic Tariff Reviews (RTP) from four to five years. The next RTPs are scheduled for December 2029 and December 2034, with annual adjustments during each cycle.

The periodic tariff reviews aim to restore tariffs, ensuring that they cover the costs of operation, maintenance and expansion of services in an efficient and prudent manner, as provided for in the concession contract. The annual adjustments aim to maintain tariff balance, applying the IPCA variation, deducted by Factors X (efficiency gains), Q (incentive to service quality) and U (universalization). Until the end of the second tariff cycle, in 2035, these adjustments will consider the IPCA, Factors Q and U, since Factor X will be included in the OPEX calculation. In addition to these components, the annual adjustments must include the update of the Regulatory Asset Base (BAR) and the reference market (volumes, connections and savings). After 2035, the calculation of adjustments will take into account only the IPCA and Factors X, Q and U.

SABESP’s current tariff structure includes differentiated tariffs by usage categories, such as residential, commercial, industrial and public. Within these categories, there are specific tariffs for low-income populations, such as the social tariff and the vulnerable tariff, in addition to tariffs for social assistance entities and public bodies that adhere to the Rational Water Use Program (PURA).

The URAE 1 – Southeast concession contract unified the methodology of 371 contracts, with expiration scheduled for October 19, 2060. The annual universalization targets and investments for each municipality are defined individually in Annex II of the concession contract.